Judicial  Settlem ent 

OF  INTERNATIONAL  DISPUTES 
No.  13 


International  Contractual  Claims  and 

Their  Settlement 


By 

EDWIN  M.  ^ORCHARD 

Assistant  Solicitor ,  Department  of  State 


AUGUST,  1913 

Published  Quarterly  by  American  Society  for  Judicial  Settlement  ol 

International  Disputes 

BALTIMORE,  U.  S.  A. 

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The  program  of  this  Conference  was  arranged  in  such  a  way 
as  to  call  forth  a  discussion  of  the  law  to  be  administered  by  a 
Permanent  International  Court.  It  is  believed  that  the  experience 
in  arbitration  and  judicial  settlement  which  some  of  the  speakers 
have  had  will  make  their  papers  as  valuable  as  they  were  timely, 
and  that  the  proceedings  as  a  whole  will  be  no  mean  contribution 
to  the  cause  of  judicial  settlement. 

Tuvstall  Smith,  Assistant  Secretary, 

The  Preston,  Baltimore,  U.  S.  A. 


International  Contractual  Claims  and 

Their  Settlement* 


By 

Edwin  M.  Borchard. 


Diplomatic  protection  is  often  invoked  by  citizens  of  one 
country  in  cases  arising  out  of  contracts  entered  into  with 
citizens  of  another,  or  with  a  foreign  government.  With 
the  constant  growth  in  international  intercourse  and  the  ex¬ 
ploitation  of  backward  countries  by  foreign  capital,  this 
class  of  cases  has  assumed  large  proportions  and  has  given 
rise  to  many  perplexing  and  delicate  diplomatic  situations. 
The  foreign  offices  of  some  of  the  more  important  govern¬ 
ments  have  differentiated  these  claims  from  tortious  claims 
arising  out  of  direct  injuries  committed  by  an  authority 
of  the  state  against  the  person  or  property  of  their  citizens, 
either  by  declining  to  interpose  in  behalf  of  their  contracting 
citizens  or  else  by  exercising  more  than  ordinary  scrutiny 
over  a  cause  of  action  having  its  origin  in  contract.  Funda¬ 
mentally  it  is  the  denial  of  justice  which  is  the  necessary 
condition  for  the  interposition  of  a  government  on  behalf  of 

*This  monograph  is  in  substance  a  chapter  of  a  forthcoming  book  by 
the  author,  “The  Diplomatic  Protection  of  Citizens  Abroad,”  to  be  pub¬ 
lished  early  in  1914  by  the  Banks  Law  Publishing  Co.,  New  York.  It 
is  issued  with  the  publishers’  permission. 


4 


JUDICIAL  SETTLEMENT 


its  citizen  prejudiced  by  breach  of  contract.  As  a  general 
rule,  before  a  claim  originating  in  a  contract  can  come  within 
the  category  of  a  denial  of  justice  it  must  have  been  sub¬ 
mitted  to  the  courts  for  such  judicial  determination  as  is 
provided  by  the  local  law  or  in  the  contract.  Until  such 
submission,  the  government’s  right  of  interposition  has  not 
yet  accrued.  The  qualifications  of  this  principle  we  shall 
consider  hereafter. 

There  are  three  important  classes  of  contract  claims: 
first,  those  arising  out  of  contracts  concluded  between  in¬ 
dividuals  who  are  citizens  of  different  countries;  second, 
those  arising  out  of  contracts  between  the  citizen  and  a  for¬ 
eign  government ;  and  third,  claims  arising  out  of  the  unpaid 
bonds  of  a  government  held  by  the  citizen  of  another.  The 
failure  of  some  publicists  to  distinguish  these  classes  clearly 
in  their  discussion  of  the  subject,  especially  the  failure  to 
distinguish  the  second  from  the  third  class,  has  brought 
about  some  confusion.  When  they  state,  as  many  of  them 
do,  that  on  principle  there  can  be  no  intervention  in  claims 
arising  out  of  contract,  they  really  mean  to  confine  their 
assertion  to  the  case  of  claims  arising  out  of  unpaid  bonds 
and  not  contracts  in  general.  This  distinction,  as  we  shall 
see  hereafter,  is  important,  inasmuch  as  there  is  far  less 
reason  for  governmental  intervention  to  secure  the  payment 
of  defaulted  bonds  of  a  foreign  government  than  there  is 
in  the  case  of  breaches  of  concession  and  similar  contracts. 

Hall  fails  properly  to  note  the  distinction  between  contract 
and  other  claims.  He  recognizes  that  there  is  a  difference 
in  the  practice  of  governments  in  supporting  claims  arising 
out  of  a  default  of  a  foreign  state  in  paying  the  interest 
or  principal  of  loans  made  to  it,  and  the  complaints  of  per¬ 
sons  sustaining  injury  in  other  ways.  He  admits  that  in  the 


OF  INTERNATIONAL  DISPUTES 


i-' 

D 


former  case  governments  generally  decline  interposition, 
whereas  in  the  latter  it  is  a  matter  of  expediency  whether 
in  the  particular  case  their  right  of  interposition  shall  be 
exercised.  After  giving  the  reasons  why  public  loans  should 
not  become  a  cause  of  international  intervention,  lie  states 
that,  fundamentally, 

“there  is  no  difference  in  principle  between  wrongs  inflicted 
by  breach  of  a  monetary  agreement  and  other  wrongs  for 
which  the  state,  as  itself  the  wrongdoer,  is  immediately  re¬ 
sponsible.”1 

While  the  statement  is  technically  correct,  it  is  apt  to  be  mis¬ 
leading,  inasmuch  as  it  treats  ordinary  contract  claims  and 
those  arising  out  of  tort  as  forming  one  class,  whereas  there 
is  an  essential  difference  between  them.  This  consists  in  the 
fact  that  in  the  case  of  contractual  claims  the  active  notice 
taken  by  the  state  of  the  wrong  done  its  citizen  is  deferred 
until  he  has  exhausted  his  local  judicial  remedies  and  a  de¬ 
nial  of  justice  is  established,  whereas  in  claims  arising  out  of 
tort,  if  chargeable  to  a  government  authority,  interposition 
is  generally  immediate;  and  in  the  further  fact  that  wider 
discretion  is  exercised  by  the  protecting  state  in  the  enforce¬ 
ment  of  contractual  claims  than  of  those  purely  tortious 
in  origin. 

Westlake  is  one  of  the  few  writers  who  properly  dis¬ 
tinguish  the  case  of  ordinary  contract  claims — for  example, 
those  arising  out  of  supplies  furnished  the  government  or 
out  of  concession  contracts  concluded  between  a  citizen  and  a 

1  Hall,  International  Law  (6th  ed.),  275-276.  See  also  Findlay,  com¬ 
missioner  U.  S.- Venezuelan  commission  of  Dec.  5,  1885,  who  considered 
the  difference  one  in  degree  only.  He  believed  that  a  contractual  claim 
for  building  a  public  work  and  one  founded  on  non-payment  of  a  public 
debt  are  the  same,  both  being  voluntary  engagements.  Opinions  of  the 
commission  (Washington,  Gibson  Bros.,  1890),  335,  Mioore’s  Arb.,  3650. 


6 


JUDICIAL  SETTLEMENT 


foreign  government — and  the  case  of  unpaid  bonds  which 
are  part  of  a  public  loan. 

In  the  case  of  ordinary  contract  claims,  he  says, 

“there  is  a  petition  of  right,  a  court  of  claims,  or  an  appro¬ 
priate  administrative  tribunal  before  which  to  go.  The  case 
is  not  essentially  different  from  any  other  arising  between 
man  and  man.  The  foreigner  who  has  contracted  with  the 
government  has  not  elected  to  place  himself  at  its  mercy,  and 
the  rule  of  equal  treatment  with  nationals  requires  that  he 
shall  have  the  full  benefit  of  the  established  procedure,  while 
if  in  a  rare  instance  there  is  no  such  established  procedure, 
or  it  proves  to  be  a  mockery,  the  other  rule  of  protecting  sub¬ 
jects  against  a  flagrant  denial  of  justice  also  comes  in.  But 
public  loans  are  contracted  by  acts  of  a  legislative  nature, 
and  when  their  terms  are  afterwards  modified  to  the  dis¬ 
advantage  of  the  bondholders  this  is  done  by  other  acts  of  a 
legislative  nature,  which  are  not  questionable  by  any  pro¬ 
ceeding  in  the  country.  If  therefore  the  rule  of  equal  treat¬ 
ment  with  nationals  be  looked  to,  the  foreign  bondholder  has 
no  case  unless  he  is  discriminated  against.  And  if  the  rule  of 
protecting  subjects  against  a  flagrant  denial  of  justice  be 
looked  to,  the  reduction  of  interest  or  capital  is  always  put 
on  the  ground  of  the  inability  of  the  country  to  pay  more — 
a  foreign  government  is  scarcely  able  to  determine  whether 
or  how  far  that  plea  is  true— supposing  it  to  be  true,  the 
provisions  which  all  legislations  contain  for  the  relief  of  in¬ 
solvent  debtors  prove  that  honest  inability  to  pay  is  regarded 
as  a  title  to  consideration — and  the  holder  of  a  bond  enforce¬ 
able  only  through  the  intervention  of  his  government  is 
trying,  when  he  seeks  that  intervention,  to  exercise  a  dif¬ 
ferent  right  from  that  of  a  person  whose  complaint  is  the 
gross  defect  of  a  remedial  process  which  by  general  under¬ 
standing  ought  to  exist  and  be  effective.”2 


2  Westlake,  International  Law,  vol.  I  (2nd  ed.),  332-333. 


OF  INTERNATIONAL  DISPUTES 


7 


Contracts  between  Individuals. 

The  first  class  of  cases,  contracts  between  individuals,  can 
give  rise  only  to  an  action  in  the  courts  for  breach  of  con¬ 
tract.  The  government  of  the  foreigner  is  in  no  wise  con¬ 
cerned  unless  the  local  courts  deny  or  unduly  delay  justice, 
in  which  event  the  government's  right  of  interposition  rests 
on  the  denial  of  justice  alone  and  disregards  the  fact  that 
the  claim  had  its  origin  in  a  contract.  This  rule  has  gen¬ 
erally  been  followed  by  the  governments  of  contracting  citi¬ 
zens,  and  has  been  applied  by  international  commissions.8 

Contracts  between  Citizen  and  Foreign  Government. 

A  more  doubtful  case  arises  where  the  contract  has  been 
concluded  between  the  citizen  and  the  foreign  government. 
We  shall  not  here  discuss  the  question  of  unpaid  bonds,  for 
this  is  a  distinct  branch  of  the  subject,  although  some  writers 
do  not  observe  it.  The  contracts  now  in  question  are  such 
as  are  made  with  the  foreign  government  for  the  supply 
of  material,  for  the  execution  of  public  works,  and  for  the 
exercise  of  concessions  of  various  kinds.  Here  again  the 
general  rule  followed  by  the  United  States,  although  not  by 
all  other  governments,  is  that  a  contract  claim  can  not  give 
rise  to  the  diplomatic  interposition  of  the  government  un¬ 
less,  after  an  exhaustion  of  local  remedies,  there  has  been 
a  denial  of  justice,  or  some  flagrant  violation  of  interna¬ 
tional  law.  The  use  of  good  offices  is,  however,  usually 
sanctioned.  While  the  rule  is  fairly  clear,  its  application  and 

3  Smith  (U.  S.)  v.  Mexico,  Act  of  Congress,  Mar.  3,  1849,  Moore’s 
Arb.,  3456;  Rowland  (U.  S.)  v.  Mexico,  Mar.  3,  1849,  Moore’s  Arb., 
3458;  Hayes  (U.  S.)  v.  Mexico,  Mar.  3,  1849,  Moore’s  Arb.,  3456;  Chase 
(U.  S.)  v.  Mexico,  Moore’s  Arb.,  3469-70;  La  Guaira  Light  &  Power 
Co.  (U.  S.)  v.  Venezuela,  Feb.  17,  1903,  Ralston  I,  182. 


8 


JUDICIAL  SETTLEMENT 


its  exceptions  are  vague,  due  principally  to  the  fact  that  the 
intervening  government  interprets  for  itself  what  is  a  denial 
of  justice  and  frequently  concludes  that  harsh  treatment  of 
its  contracting  citizen  by  the  foreign  government  constitutes 
a  tortious  act  which  takes  the  case  out  of  the  ordinary  rule. 
Broadly  speaking,  we  might  state  the  rule  as  follows :  Diplo¬ 
matic  interposition  will  not  lie  for  the  natural  or  anticipated 
consequences  of  the  contractual  relation,  but  only  for  arbi¬ 
trary  incidents  or  results,  such  as  a  denial  of  justice  or  fla¬ 
grant  violation  of  local  or  international  law.4 

There  are  several  reasons  why  governments  are  and 
should  be  less  zealous  in  pressing  the  claims  of  their  citizens 
arising  out  of  breach  of  contract  than  those  arising  out  of 
some  tortious  act.  The  first  reason  is  that  the  citizen  enter¬ 
ing  into  a  contract  does  so  voluntarily  and  takes  into  account 
the  probabilities  and  possibilities  of  performance  by  the  for¬ 
eign  government.  He  has  in  contemplation  all  the  ordinary 
risks  which  attend  the  execution  of  the  contract.  In  the 
second  place,  by  going  abroad,  he  submits  impliedly  to  the 
local  law  and  the  local  judicial  system.  The  contract  or  the 
law  provides  remedies  for  breach  of  contract.  These  he 
must  pursue  before  his  own  government  can  become  inter¬ 
ested  in  his  case.  In  the  third  place,  practically  every  civi¬ 
lized  state  may  be  sued  for  breach  of  contract.  Even  the 
United  States,  which  renders  itself  less  amenable  to  suit  at 
the  hands  of  injured  individuals  than  perhaps  any  other 
country,  recognizes  its  liability  for  illegal  breaches  of  con- 

4  F.  de  Martens,  in  his  essay  “Par  la  justice  vers  la  paix”  (pp.  30-31), 
supports  the  rule  of  non-interference  by  the  government  until  the  claim¬ 
ant  has  appealed  to  the  local  courts  and  justice  has  been  denied.  Even 
then  he  suggests  a  preliminary  judicial  examination  into  the  justice  of 
the  claim  by  the  government  of  the  claimant.  See  also  Martens’  Traite 
de  droit  international,  vol.  I,  446-447.  See  also  Fiore,  P.  Nouveau 
droit  int.  public  (Paris,  1885,  Antoine’s  trans.),  §  651 ;  Lomonaco,  Diritto 
intemazionale  pubblico  (Napoli,  1905),  218-219. 


OF  INTERNATIONAL  DISPUTES 


9 


tract.* * 6  In  England,  a  petition  of  right  is  rarely  refused;  in 
the  United  States,  the  Court  of  Claims  or  a  similar  body  in 
the  states  has  jurisdiction;  in  France  and  some  other  coun¬ 
tries,  the  Council  of  State  or  some  administrative  body  is  the 
proper  forum  for  suits  against  the  State;  in  Latin  America 
the  Supreme  Court  is  generally  given  jurisdiction. 

The  exceptions  to  this  requirement  of  exhausting  local 
remedies  occur  first,  where  the  local  judicial  organization  is 
so  corrupt,  or  the  possibility  of  local  remedy  so  remote,  that 
it  would  be  folly  to  compel  a  citizen  to  submit  his  cause  of 
action  to  local  courts.  The  fact  that  the  protecting  govern¬ 
ment  determines  for  itself  the  existence  of  these  qualifying 
conditions  renders  the  application  of  the  rule  uncertain. 
Secondly,  where  the  breach  is  one  not  within  the  contempla¬ 
tion  of  the  contracting  parties,  but  partakes  of  the  nature  of 
an  arbitrary  tort,  the  protecting  government  will  relieve  its 
citizen  from  the  ordinary  rule  of  submission  to  local  courts. 
The  position  of  the  injured  individual  and  the  protecting 
government  is  the  same  as  in  cases  of  ordinary  tortious  acts 
of  the  defendant  government  and  justifies  interposition. 

The  early  publicists  seem  to  have  justified  reprisals  by  a 
government  for  default  of  obligations  due  its  citizen  on  the 
part  of  another  government.  Grotius  appears  to  have  sanc¬ 
tioned  reprisals  for  the  collection  of  debts  due  to  subjects 
from  a  foreign  power  notwithstanding  the  claim  to  be  thus 
satisfied  was  submitted  to  the  courts  of  the  government  in 
default  and  by  them  pronounced  unfounded.6  Vattel  simi¬ 
larly  justified  hostile  action  to  enforce  contracts  concluded 
between  a  citizen  and  a  foreign  government.  But  Vattel  ad- 

6  Revised  Statutes,  §  1059,  par.  1 ;  §  1060 ;  §  1068 ;  Act  of  March  3,  1887 

(Tucker  Act),  24  Stat  L.,  505,  §  1. 

6  Grotius,  De  jure  belli  ac  pacis,  3,  2,  5 ;  cf.  1,  5,  2  and  2,  25,  1. 


IO 


JUDICIAL  SETTLEMENT 


mits  that  before  the  claimant  nation  proceeds  to  such  ex¬ 
tremities  (reprisals)  it  must  be  able  to  show  that  it 

“has  ineffectually  demanded  justice,  or  at  least  that  [the 
claimant]  has  every  reason  to  think  it  would  be  vain  .  .  . 
to  demand  it.”7 

From  that  time  on,  the  conviction  has  gained  ground  that  an 
attempt  to  exhaust  local  justice  must  be  shown  before  diplo¬ 
matic  pressure  or  hostile  action  is  warranted.  Modern 
writers  generally  agree  that  where  the  citizen  has  at  his 
disposal  the  legal  means  of  asserting  his  rights  and  obtain¬ 
ing  reparation  of  his  injury  by  judicial  proceedings,  the  in¬ 
terposition  of  his  government  is  unjustified,  for 

“to  secure  by  diplomacy  what  the  individual  might  secure 
judicially  is  to  be  deemed  highly  reprehensible.”8 

As  we  shall  see,  contractual  claims  are  among  the  first  causes 
of  complaint  now  largely  removed  from  the  field  of  armed 
conflict,  through  the  adoption  by  the  Second  Hague  Con¬ 
ference  and  the  general  ratification  of  the  convention  for  the 
limitation  of  force  to  recover  contract  debts. 

Coming  now  to  the  practice  of  governments  we  can  not 
say  that  the  countries  of  continental  Europe  make  any  sub¬ 
stantial  distinction  between  claims  arising  out  of  contract 
and  those  arising  out  of  other  acts.9  The  United  States, 

7  Vattel,  Law  of  Nations  (Chitty-Ingraham  edition,  Phila.,  1855),  Bk. 
II,  Ch.  14,  §  18,  214-216;  Ch.  18,  §§  343,  347,  354.  See  also  Wheaton, 
International  Law  (Lawrence’s  edition,  1863),  510. 

8  Fiore,  P.  Nouveau  droit  international  public  (Antoine’s  trans.),  vol. 
I,  §  651.  Martens,  Traite  de  droit  international,  446. 

9  Germany,  Italy  and  France  have  at  times  intervened  diplomatically 
in  favor  of  their  subjects  in  cases  arising  out  of  contract,  without  any 
question  as  to  the  propriety  of  such  action.  Germany’s  and  Italy’s  atti¬ 
tude  was  shown  in  the  action  against  Venezuela  in  1902.  See  Dulon  in 
38  Amer.  Law  Rev.,  650,  and  Brook  in  30  Law  Mag.  &  Rev.,  165.  See 
also  case  of  Kronsberg,  a  German  engineer,  against  Roumania  in  1871, 
Tchernoff,  Protection*  des  nationaux  a  1’etranger,  188;  Martens’  Traite, 
I,  70.  See  the  French  action  against  the  Dominican  Republic,  1894,  For. 
Rel.,  1895,  I,  235-243,  397-402. 


OF  INTERNATIONAL  DISPUTES 


II 


however,  and  at  times  Great  Britain,  have  limited  their 
protection  considerably  in  the  case  of  ordinary  contract 
claims.  The  fact  that  the  citizen  entered  voluntarily  into 
the  contract  seems  to  have  been  a  determining  factor  in  the 
policy  of  the  United  States  not  to  interpose  diplomatically 
in  behalf  of  its  citizens  prejudiced  through  breach  of  a  con¬ 
tract  concluded  by  them  with  a  foreign  government.  John 
Quincy  Adams’  statement  as  Secretary  of  State  has  been 
quoted  frequently  by  his  successors  in  the  Department  of 
State.  Adams’  ruling  was  as  follows : 

“With  regard  to  the  contracts  of  an  individual  born  in  one 
country  with  the  government  of  another,  most  especially 
when  the  individual  contracting  is  domiciliated  in  the  coun¬ 
try  with  whose  government  he  contracts,  and  formed  the 
contract  voluntarily,  for  his  own  private  emolument  and 
without  the  privity  of  the  nation  under  whose  protection  he 
has  been  born,  he  has  no  claim  whatsoever  to  call  upon  the 
government  of  his  nativity  to  espouse  his  claim,  this  govern¬ 
ment  having  no  right  to  compel  that  with  which  he  volun¬ 
tarily  contracted  to  the  performance  of  that  contract.”10 

Mr.  Marcy  in  1856  made  the  following  apt  statement  of 
the  rule  of  the  Department  of  State: 

“The  government  of  the  United  States  is  not  bound  to  in¬ 
terfere  to  secure  the  fulfillment  of  contracts  made  between 
their  citizens  and  foreign  governments,  it  being  presumed 
that  before  entering  into  such  contracts  the  disposition  and 
ability  of  the  foreign  power  to  perform  its  obligations  was 
examined,  and  the  risk  of  failure  taken  into  consideration.”* 11 

10  John  Quincy  Adams,  Secretary  of  State,  to  Mr.  Salmon  (April  29, 
1823),  Am.  St.  Pap.,  For.  Rel.,  vol.  5,  403,  quoted  in  Wharton  II,  654, 
Moore’s  Dig.,  VI,  708,  and  notes  there  cited.  See  also  the  Landreau 
case,  Sec’y  of  State  Bayard  to  Mr.  Cowie  (June  15,  1885),  Moore’s  Dig., 
VI,  715 ;  and  the  Fiedler  case,  Mr.  Bayard,  Sec’y  of  State,  to  Mr.  Jarvis 
(Mar.  22,  1886),  Moore’s  Dig,  VI,  715. 

11  Mr.  Marcy,  Sec’y  of  State,  to  Mr.  Fowler  (July  17,  1856),  Wharton 
II,  655. 


12 


JUDICIAL  SETTLEMENT 


While  diplomatic  interposition  or  pressure  is  declined,  the 
use  of  friendly  good  offices  by  the  diplomatic  representatives 
of  the  United  States  abroad  is  authorized.  Secretary  Fish 
expressed  as  follows  the  practice  of  the  Department  in  this 
respect : 

“Our  long-settled  policy  and  practice  has  been  to  decline 
the  formal  intervention  of  the  government  except  in  cases  of 
wrong  and  injury  to  persons  and  property,  such  as  the  com¬ 
mon  law  denominates  torts  and  regards  as  inflicted  by  force, 
and  not  the  results  of  voluntary  engagements  or  contracts. 

“In  cases  founded  upon  contract  the  practice  of  this  gov¬ 
ernment  is  to  confine  itself  to  allowing  its  minister  to  exert 
his  friendly  good  offices  in  recommending  the  claim  to  the 
equitable  consideration  of  the  debtor  without  committing  his 
own  government  to  any  ulterior  proceedings.”12 

What  is  meant  by  “good  offices”  and  the  extent  to  which 
they  may  be  exerted  has  on  several  occasions  been  construed 
by  secretaries  of  state.  Mr.  Fish  defined  the  use  of  “good 
offices”  as  a  direction  to  a  diplomatic  agent 

“to  investigate  the  subject,  and  if  [he]  shall  find  the  facts  as 
represented  [he]  will  seek  an  interview  with  the  minister  for 
foreign  affairs  and  request  such  explanations  as  it  may  be  in 
his  power  to  afford.”18 

Good  offices  are  in  the  nature  of  unofficial  personal  recom¬ 
mendations  and  are  not  tendered  officially,  although  appar¬ 
ently  the  government  may  authorize  or  direct  a  diplomatic 
representative  to  extend  them.  Perhaps  the  best  statement 

12  Mr.  Fish,  Sec’y  of  State,  to  Mr.  Muller  (May  16,  1871),  Wharton 
II,  656,  Moore’s  Dig.,  VI,  710.  See  the  long  list  of  cases  cited  by  Whar¬ 
ton  (II,  655)  and  by  Moore  (VI,  705-707)  in  support  of  the  rule  that 
“it  is  not  usual  for  the  Government  of  the  United  States  to  interfere, 
except  by  its  good  offices,  for  the  prosecution  of  claims  founded  on  con¬ 
tracts  with  foreign  governments.” 

13  Mr.  Fish,  Sec’y  of  State,  to  Mr.  Osborn  (Mar.  4,  1876),  Wharton 
II,  658,  Moore’s  Dig.,  VI,  711. 


OF  INTERNATIONAL  DISPUTES 


J3 


of  the  practice  of  the  United  States  in  the  matter  of  contract 
claims  was  made  by  Secretary  Bayard  in  1885  : 

“It  is  not  necessary  to  remind  you  that  an  appeal  by  one 
sovereign  on  behalf  of  a  subject  to  obtain  from  another  sov¬ 
ereign  the  payment  of  a  debt  alleged  to  be  due  such  subject 
is  the  exercise  of  a  very  delicate  and  peculiar  prerogative, 
which,  by  principles  definitely  settled  in  this  Department,  is 
placed  under  the  following  limitations : 

“1.  All  that  our  government  undertakes,  when  the  claim 
is  merely  contractual,  is  to  interpose  its  good  offices ;  in  other 
words,  to  ask  the  attention  of  the  foreign  sovereign  to  the 
claim;  and  this  is  only  done  when  the  claim  is  one  suscepti¬ 
ble  of  strong  and  clear  proof. 

“2.  If  the  sovereign  appealed  to  denies  the  validity  of  the 
claim  or  refuses  its  payment,  the  matter  drops,  since  it  is  not 
consistent  with  the  dignity  of  the  United  States  to  press, 
after  such  a  refusal  or  denial,  a  contractual  claim  for  the 
repudiation  of  which  there  is  by  the  law  of  nations  no  re¬ 
dress.  *  *  * 

“3.  When  the  alleged  debtor  sovereign  declares  that  his 
courts  are  open  to  the  pursuit  of  the  claim,  this  by  itself  is  a 
ground  for  a  refusal  to  interpose.  Since  the  establishment 
of  the  Court  of  Claims,  for  instance,  the  government  of  the 
United  States  remands  all  claims  held  abroad,  as  well  as  at 
home,  to  the  action  of  that  court,  and  declines  to  accept  for 
its  executive  department  cognizance  of  matters  which  by 
its  own  system  it  assigns  to  the  judiciary. 

“4.  When  this  Department  has  been  appealed  to  for  diplo¬ 
matic  intervention  of  this  class,  and  this  intervention  is  re¬ 
fused,  this  refusal  is  regarded  as  final  unless  after-discovered 
evidence  be  presented  which,  under  the  ordinary  rules  ap¬ 
plied  by  the  courts  in  motions  for  a  new  trial,  ought  to 
change  the  result,  or  unless  fraud  be  shown  in  the  concoc¬ 
tion  of  the  decision.’’14 

14  Mr.  Bayard,  Sec’y  of  State,  to  Mr.  Bispham  (June  24,  1885),  Whar¬ 
ton  II,  656,  Moore’s  Dig.,  VI,  716. 


H 


JUDICIAL  SETTLEMENT 


Even  good  offices  will,  however,  be  refused 

“when  the  debt  was  of  a  speculative  character,  or  when  it 
was  incurred  to  aid  the  debtor  government  to  make  war  on  a 
country  with  which  the  United  States  was  at  peace.”15 

From  this  we  may  infer  that  the  State  Department  takes 
some  official  interest  in  the  extension  of  good  offices. 

The  United  States  will  not  promise  protection  in  advance 
to  secure  the  execution  of  a  contract  between  a  citizen  and 
a  foreign  government.  The  American-China  Development 
Company  in  entering  upon  contracts  with  China  requested 
such  advance  protection  and  alleged  that  the  English  in¬ 
vestors  in  their  enterprise  would  receive  such  guaranty 
from  the  British  foreign  office.  Secretary  of  State  Day 
gave  as  the  reason  for  his  unwillingness  to  extend  such  a 
guaranty  as  the  British  government  was  said  to  have  ex¬ 
tended,  that  the  British  Crown,  exercising  the  executive 
power  in  Great  Britain,  possesses  both  the  war-making  and 
the  treaty-making  power,  and  is  therefore  authorized,  in  in¬ 
ternational  relations,  to  give  guarantees  and  enter  into  en¬ 
gagements  which  the  Executive  of  the  United  States  would 
not  alone  be  competent  to  assume.16 

Secretary  Marcy  in  1855  gave  a  somwhat  similar  explana¬ 
tion  for  the  unwillingness  of  the  United  States  to  interfere 
officially  in  a  case  of  alleged  breach  by  a  foreign  government 
of  a  contract  with  citizens  of  the  United  States.17  The  pos¬ 
sibility  of  Congress  declining  to  support  the  action  of  the 
Executive  does  not,  however,  appear  to  have  been  as  prom- 

15  Mr.  Seward,  Sec’y  of  State,  to  Messrs.  Leavitt  &  Co.  (May  6,  1868), 
Wharton  II,  656,  Moore’s  Dig.,  VI,  710. 

16  Sec’y  of  State  Day  to  Messrs.  Cary  &  Whitridge  (Aug.  24,  1898), 

in  the  case  of  the  American-China  Development  Co.,  Moore’s  Dig., 

vi,  288.  ; 

17  Mr.  Marcy,  Sec’y  of  State,  to  Mr.  Clay,  Minister  to  Peru  (May  24, 
1855),  Moore’s  Dig.,  VI,  709. 


OF  INTERNATIONAL  DISPUTES 


15 


inently  in  the  minds  of  other  secretaries  of  state  in  dealing 
with  international  claims.  While  the  Department  of  State 
will  rarely  protest  in  advance  against  a  proposed  law  of  a 
foreign  country  interfering  merely  with  contractual  rights 
of  American  citizens,  there  have  been  occasions  where  such 
action  was  taken.18 

The  general  belief  that  Great  Britain  does  not  in  practice 
interfere  in  claims  arising  out  of  contract,  is  erroneously 
based  upon  the  frequently  quoted  circular  of  Lord  Palmer¬ 
ston,  Secretary  of  State  for  Foreign  Affairs,  directed  in  1848 
to  the  British  representatives  in  foreign  states.19  Palmerston 
declared  that  while  the  government  had  the  right  to  inter¬ 
vene,  it  was  merely  a  question  of  discretion  with  the  British 
government  whether  the  pecuniary  claims  of  subjects  should 
be  taken  up  or  not  by  diplomatic  negotiation,  and  “the  de¬ 
cision  of  that  question  of  discretion  turns  entirely  upon  Brit¬ 
ish  and  domestic  considerations.”20  This  language  is  broad 
enough  indeed  to  cover  any  class  of  claim,  but  it  must  be 
understood  that  Palmerston’s  ruling  was  made  with  refer¬ 
ence  to  claims  arising  out  of  unpaid  bonds  of  foreign  states 
held  by  British  subjects,  a  case  in  which  intervention  is  for 
various  reasons,  as  we  shall  show,  even  less  justifiable  than 
in  the  case  of  ordinary  contracts. 

18  Mr.  Webster,  Sec’y  of  State,  to  Mr.  Letcher  (August  24,  1850), 
protesting  against  any  violation  by  decree  of  tbe  Tehuantepec  conces¬ 
sion,  adding  that  this  would  be  regarded  as  a  national  grievance.  Sen. 
Doc.  97,  32nd  Cong.,  1st  Sess. 

19  The  instruction  in  full  is  printed  in  Phillimore  on  International 
Law  (3rd  ed.,  London,  1882),  vol.  2,  9-11. 

20  In  fact,  Great  Britain  has  often  interposed  to  redress  breaches  of 
private  contract.  See,  for  example,  the  intervention  in  Bolivia  in  1853, 
Lord  Clarendon  to  Mr.  Lloyd,  56  St.  Pap.,  1003,  and  the  criticism  of 
Great  Britain’s  action  by  Baty,  Int.  Law,  p.  127.  Great  Britain  freely 
extends  good  offices.  See,  for  example,  case  of  Dixon  v.  Portugal,  75 
St.  Pap.,  1196. 


i6 


JUDICIAL  SETTLEMENT 


In  applying  the  rule  of  refusing  diplomatic  interposition 
on  contract  claims,  the  United  States  has  always  been  care¬ 
ful  to  limit  its  strict  interpretation  to  cases  entirely  free 
from  the  qualifying  factors  of  a  denial  of  justice  or  other 
tortious  element.  If  in  any  respect  a  denial  of  justice  could 
be  discerned  in  the  case,  or  if  any  arbitrary  act  or  confisca¬ 
tory  breach  of  the  contract  had  taken  place,  the  rule  has  been 
considered  as  no  longer  applying.  A  brief  enumeration  of 
these  exceptions  to  the  rule  may  be  of  interest. 

i.  The  United  States  has  on  several  occasions  insisted 
that  its  citizens  entering  into  foreign  contracts  shall  have 
free  and  fair  access  to  the  courts  and  that  the  courts  shall 
be  so  organized  that  the  dispensing  of  justice  may  be  pre¬ 
sumed.  Secretary  of  State  Evarts  once  said  that  when  a 
government  does  not  hold  itself  amenable  to  judicial  suit  by 
foreign  claimants  on  contracts  made  with  it,  their  claims  may 
be  held  to  form  an  exception  to  the  general  rule  as  to  con¬ 
tracts,21  and  in  a  subsequent  case  in  Hayti,  the  Lazare  case, 
Mr.  Evarts  added : 

“the  Government  of  the  United  States  will  insist  on  fair  and 
impartial  examination  and  adjudication  by  Hayti,  without 
discrimination  as  to  nationality,  of  a  contractual  claim  of  a 
citizen  of  the  United  States  against  Hayti.22 

Mr.  Bayard  in  stating  the  general  rule  of  refusal  to  press 
contract  claims  excepted  the  case  of  discrimination  against  a 
citizen  by  the  debtor  government  and  a  denial  of  a  judicial 
remedy  against  it.23  In  the  celebrated  Idler  case  the  fact 

21  Mr.  Evarts  to  Mr.  Gibbs  (Oct.  31,  1877),  Wharton  II,  662.  This 
statement  occurs  in  Mr.  Evarts’  opinion  in  the  case  of  Sparrow  v.  Peru, 
Moore’s  Dig.,  VI,  720.  See  also  For.  Rel.,  1895-6,  Pt.  II,  1036-1055. 

22  Mr.  Evarts  to  Mr.  Langston,  Minister  to  Hayti  (Dec.  13,  1877), 
Moore’s  Dig.,  VI,  724.  For  a  history  of  the  Lazare  case,  see  Moore’s 
Arb.,  1749  et  seq. 

23  Mr.  Bayard,  Sec’y  of  State,  to-  Mr.  Hall,  Minister  to  Central  Amer¬ 
ica  (Mar.  27,  1888),  For.  Rel.,  1888,  Pt.  I,  136.  See  also  Moore’s  Dig., 
VI,  727. 


OF  INTERNATIONAL  DISPUTES 


17 


that  Venezuela  had  illegally  invoked  the  remedy  of  restitutio 
in  integrum  and  by  executive  action  had  arbitrarily  changed 
the  personnel  of  the  court  and  district  attorney  for  that  par¬ 
ticular  case  was  held  by  the  mixed  commission  under  the 
convention  of  Dec.  5,  1885,  to  have  been  a  denial  of  justice 
and  to  warrant  an  award.24 

2.  Cases  have  frequently  occurred  in  which  the  contracts 
of  citizens  of  the  United  States  with  foreign  governments 
were  arbitrarily  annulled  by  the  contracting  government 
without  recourse  to  a  judicial  determination  of  the  contract 
or  of  the  legitimacy  of  its  act.  An  act  of  this  kind  has  gen¬ 
erally  been  held  by  the  Department  of  State  to  be  a  confisca¬ 
tory  breach  of  the  contract  and  to  warrant  diplomatic  inter¬ 
position  as  in  cases  of  tort.  Any  weakening  of  the  judicial 
remedy  of  the  citizen  has  been  held  equally  to  relieve  the 
government  from  the  ordinary  rule  of  non-intervention  in 
contract  cases.  The  rule  in  such  cases  has  perhaps  been  best 
stated  by  Lewis  Cass,  when  Secretary  of  State,  as  follows  : 

“It  is  quite  true,  for  example,  that  under  ordinary  circum¬ 
stances  when  citizens  of  the  United  States  go  to  a  for¬ 
eign  country  they  go  with  an  implied  understanding  that) 
they  are  to  obey  its  laws,  and  submit  themselves,  in  good 
faith,  to  its  established  tribunals.  When  they  do  business 
with  its  citizens,  or  make  private  contracts  there,  it  is  not 
to  be  expected  that  either  their  own  or  the  foreign  govern¬ 
ment  is  to  be  made  a  party  to  this  business  or  these  contracts, 
or  will  undertake  to  determine  any  disputes  to  which  they 
may  give  rise.  The  case,  however,  is  very  much  changed 
when  no  impartial  tribunals  can  be  said  to  exist  in  a  foreign 
country,  or  when  they  have  been  arbitrarily  controlled  by 
the  government  to  the  injury  of  our  citizens.  So,  also,  the 
case  is  widely  different  when  the  foreign  government  be- 


24  Idler  (U.  S.)  v.  Venezuela,  Dec.  5,  1885,  Moore’s  Arb.,  3517. 


i8 


JUDICIAL  SETTLEMENT 


comes  itself  a  party  to  important  contracts,  and  then  not 
only  fails  to  fulfill  them,  but  capriciously  annuls  them,  to 
the  great  loss  of  those  who  have  invested  their  time  and 
labor  and  capital  from  a  reliance  upon  its  own  good  faith 
and  justice.”25 

In  a  previous  communication  to  Mr.  Lamar,  Minister  to 
Central  America,  Mr.  Cass  stated : 

“What  the  United  States  demand  is  that  in  all  cases 
where  their  citizens  have  entered  into  contracts  with  the 
proper  Nicaraguan  authorities,  and  questions  have  arisen  or 
shall  arise  respecting  the  fidelity  of  their  execution,  no  decla¬ 
ration  of  forfeiture,  either  past  or  to  come,  shall  possess  any 
binding  force  unless  pronounced  in  conformity  with  the  pro¬ 
visions  of  the  contract,  if  there  are  any;  or  if  there  is  no 
provision  for  that  purpose,  then  unless  there  has  been  a  fair 
and  impartial  investigation  in  such  a  manner  as  to  satisfy 
the  United  States  that  the  proceeding  has  been  just  and  that 
the  decision  ought  to  be  submitted  to.”20 

The  forcible  deprivation  of  the  property  and  franchises 
of  a  citizen  of  the  United  States  without  due  process  of  law 
and  a  fair  trial  is  considered  as  a  tort  and  the  claim  will  be 
pressed  on  that  ground  regardless  of  its  contractual  origin. 

Madison,  at  an  early  date  in  our  history,  distinguished  be¬ 
tween  “compulsory  measures”  practised  upon  United  States 
citizens  and  “voluntary  contracts,”  the  possible  results  of 
which  may  be  presumed  to  have  been  in  the  contemplation 
of  the  parties.27 

25  Mr.  Cass,  Sec’y  of  State,  to  Mr.  Dimitry  (May  3,  1860),  Moore’s 
Dig.,  VI,  287. 

26  Mr.  Cass,  Sec’y  of  State,  to  Mr.  Lamar,  Minister  to  Central  Amer¬ 
ica  (July  25,  1858),  Wharton  II,  661,  Moore’s  Dig,  VI,  723-724.  See 
also  Mr.  Cass  to  Mr.  Jerez  (May  5,  1859),  Moore’s  Dig,  VI.  724;  Mr. 
Bayard,  Sec’y  of  State,  to  Mr.  Scott,  Minister  to  Venezuela  (June  23, 
1887),  Moore’s  Dig,  VI,  725. 

27  Mr.  Madison,  Sec’y  of  State,  to  Mr.  Livingston  (Oct.  27,  1803), 
Moore’s  Dig,  VI,  707. 


OF  INTERNATIONAL  DISPUTES 


19 


Perhaps  the  most  zealous  interposition  on  the  part  of  the 
United  States  has  been  in  cases  where  the  confiscatory  act 
of  the  foreign  government  consisted  in  the  arbitrary  annul¬ 
ment  of  the  entire  contract  or  of  some  of  its  essential  pro¬ 
visions  without  a  resort  to  the  courts.28 

Numerous  other  cases  have  occurred,  particularly  in  Ven¬ 
ezuela,  where  the  arbitrary  annulment  of  a  contract  by  the 
Executive  without  appeal  to  the  courts  was  held  to  justify 
diplomatic  intervention  and  to  render  the  government  liable.2® 
Nor  has  the  presence  of  the  Calvo  clause  in  the  contract,  by 
which  the  alien  contractor  undertakes  to  make  the  local 
courts  his  final  forum  and  to  forego  his  right  to  claim  the 
diplomatic  protection  of  his  own  government,  denied  to  the 
claimant’s  government  the  right  to  interpose  in  his  behalf 
where  there  has  been  an  arbitrary  annulment  of  the  contract 

28  Delagoa  Bay  Railroad  case,  McMurdo  (U.  S.)  v.  Portugal,  For. 
Rel.,  1900,  903;  1902.  848-852.  See  also  Moore’s  Dig.,  VI,  727-728, 
Moore’s  Arb.,  1865-1899. 

For  the  El  Triunfo  case,  Salvador  Commercial  Co.  (U.  S.)  v.  Salva¬ 
dor,  see  For.  Rel.,  1902,  838-880,  and  the  learned  arguments  of  Hon. 
W.  L.  Penfield,  Solicitor  of  the  Department  of  State,  839-848.  See  also 
the  legal  opinion  (Gutachten)  of  Professor  Ludwig  von  Bar,  given  at 
the  request  of  the  Government  of  Salvador,  which  is  printed  under  the 
title  “Eine  internationale  Recntsstreitigkeit,”  in  Jhering’s  Jahrbiicher, 
vol.  45,  161-210. 

See  also  the  case  of  May  (U.  S.)  v.  Guatemala,  For.  Rel.,  1900,  648- 
674,  Jenner  Arbitrator,  Moore’s  Dig.,  VI,  730.  In  Oliva  (Italy)  v.  Ven¬ 
ezuela,  Feb.  13,  May  7,  1903,  it  was  held  that  claimant’s  unlawful  expul¬ 
sion,  preventing  compliance  with  the  contract,  was  an  arbitrary  act, 
justifying  damages  for  money  expended  and  time  lost.  Ralston  I,  771. 
See  also  Paquet  (Belgium)  v.  Venezuela,  March  7,  1903,  Ralston  I,  269; 
Aboilard  (France)  v.  Hayti,  June  15,  1904,  Arbitrators  Vignaud,  Re¬ 
nault  and  Solon  Menos,  Rev.  gen.  de  droit  int.  pub.,  vol.  12  (1905), 
Documents,  12,  13-17 ;  Punchard  et  ah,  Antioquia  Railway  (Gt.  Brit.)  v. 
Colombia,  July  31,  1896,  La  Fontaine  Pasicrisie  Internationale,  544; 
Cedroni  (Italy)  v.  Guatemala,  March  18,  1898;  La  Fontaine,  op.  cit, 
606;  the  concessions  in  the  last  case  were  gratuitous. 

29  Senate  Document  413,  60th  Cong.,  1st  Sess.,  p.  105.  Rudloff  (U.  S.) 
v.  Venezuela,  Feb.  17,  1903,  Ralston  I,  187;  Kunhardt  (U.  S.)  v.  Vene¬ 
zuela,  Morris’s  Rep.,  Senate  Document  317,  58th  Cong.,  2nd  Sess.,  189- 
190;  Selwyn  (Gt.  Brit.)  v.  Venezuela,  Feb.  13,  1903,  Ralston  I,  322; 
North  &  South  America  Construction  Co.  (U.  S.)  v.  Chile,  Aug.  7, 
1892,  Moore’s  Arb.,  2938,  and  final  settlement  in  For.  Rel.,  1895,  I,  85-86; 
Milligan  (U.  S.)  v.  Peru,  Dec.  4,  1868,  Moore’s  Arb.,  1643. 


20 


JUDICIAL  SETTLEMENT 


by  the  local  government.  This  conclusion  has  been  based 
on  one  of  several  grounds.  In  some  cases  the  arbitrary 
action  of  the  government  was  held  to  be  a  tort,  thus  render¬ 
ing  the  construction  of  the  contract  unnecessary.  In  other 
cases  the  arbitrary  action  and  the  failure  of  the  government 
to  secure  a  judicial  construction  in  first  instance  was  held 
to  relieve  the  claimant  from  his  own  stipulation  to  resort 
to  the  local  courts  and  forego  the  diplomatic  protection  of  his 
government.  In  any  event,  it  was  held  that  the  citizen  could 
not  contract  away  the  right  of  his  own  government  to  inter¬ 
pose  diplomatically  in  his  behalf,  the  right  of  his  government 
to  intervene  being  superior  to  the  right  or  competency  of 
the  individual  to  contract  it  away.30 

3.  Various  acts  of  foreign  governments  have  been  con¬ 
strued  as  sufficiently  arbitrary  to  warrant  the  United  States 
in  intervening  in  contract  claims  or  to  authorize  interna¬ 
tional  commissions  to  award  indemnities.  Thus  the  pro¬ 
posed  depreciation  by  Hayti  of  the  value  of  certain  bonds 
issued  to  American  citizens  for  work  and  materials  was  held 
to  justify  the  United  States  in  protesting  and  eventually  in¬ 
tervening.31  Lord  Salisbury,32  the  British  foreign  secretary, 
protested  likewise  against  a  proposed  act  of  Peru  tending  to 
weaken  certain  security  hypothecated  to  the  holders  of  Peru¬ 
vian  bonds.  So  the  diversion  of  the  security  of  certain  rev- 

30  Martini  (U.  S.)  v.  Venezuela,  Feb.  13,  1903,  Ralston  I,  819;  Selwyn 
(Gt.  Brit.)  v.  Venezuela,  Feb.  13,  1903,  Ralston  I,  322;  Milligan  (U.  S.) 
v.  Peru,  Dec.  4,  1868,  Moore’s  Arb.,  1643 ;  Delagoa  Bay  Railway  case, 
McMurdo  (U.  S.  and  Great  Britain)  v.  Portugal,  June  13,  1891,  Moore’s 
Arb.,  1865;  see  also  International  Law  Association,  24th  Rep.  (1908), 
address  of  Jackson  PI.  Ralston,  pp.  192,  193;  Mr.  Bayard  to  Mr.  Scott, 
Minister  to  Venezuela  (June  23,  1887),  Moore’s  Dig.,  VI,  725. 

31  Mr.  Sherman,  Sec’y  of  State,  to  Mr.  Powell,  Minister  to  Hayti 
(Oct.  26,  1897),  Moore’s  Dig.,  VI,  729. 

32  Lord  Salisbury,  British  Foreign  Sec’y,  to  Sehor  Pividal,  Peruvian 
Minister  (Nov.  26,  1879),  quoted  from  Parliam jntary  Papers  in  Moore’s 
Dig.,  VI,  724. 


OF  INTERNATIONAL  DISPUTES 


21 


enue  pledged  to  the  payment  of  the  claims  of  citizens  of  the 
United  States,  even  when  contractual  in  origin,  has  been 
held  to  warrant  interposition.33 

4.  The  United  States  has  on  several  occasions  intervened 
to  secure  the  payment  to  one  of  its  citizens  of  the  damages 
arising  through  breach  of  contract  by  a  foreign  government 
where  such  breach  involved  an  element  of  tort.  Thus  the 
seizure  by  the  President  of  the  Dominican  Republic  of  the 
Ozama  bridge  brought  about  the  diplomatic  interposition  of 
the  United  States  in  behalf  of  Thurston,  an  American  engi¬ 
neer  who  had  built  the  bridge  under  contract  with  that  gov¬ 
ernment.34  The  most  recent  case  of  this  character  was  the 
arbitrary  expulsion  of  Treasurer-General  Shuster  from  Per¬ 
sia,  in  which  case  the  Department  of  State  took  an  interest 
and  by  its  firm  position  helped  to  secure  the  full  payment  of 
salary  for  the  entire  unexpired  time  of  the  contract.35 

5.  The  equitable  character  of  the  claim  has  at  times  in¬ 
duced  the  Department  of  State  to  recede  from  its  rigorous 
position  of  declining  interposition  where  the  claim  orig¬ 
inated  in  a  contract.30 

Equitable  considerations  alone,  however,  have  rarely  in¬ 
duced  any  stronger  action  than  the  use  of  good  offices. 

6.  Where  a  definite  arrangement  for  the  liquidation  of  the 
claim  has  been  made  between  the  alien  and  the  government, 

33  Walter  (U.  S.)  v.  Venezuela,  Dec.  5,  1885,  Moore’s  Arb.,  3567-3568; 
Moses  (U.  S.)  v.  Mexico,  July  4,  1868,  Moore’s  Arb.,  3465. 

34  Ozama  Bridge  claim,  Thurston  (U.  S.)  v.  Dominican  Republic, 
For.  Rel.,  1898,  274-291. 

35  Article  of  Clement  L.  Bouve,  Russia’s  Liability  in  Tort  for  Persia’s 
Breach  of  Contract,  citing  note  of  Secretary  of  State  Knox  of  Dec.  1, 
1911,  American  Journal  of  International  Law,  vol.  6,  396-407. 

36  Letter  of  Evarts,  Sec’y  of  State,  to  Sir  E.  Thornton  (May  2,  1879), 
Wharton’s  Dig.,  II,  658;  see  also  correspondence  between  Mr.  Fish  and 
Mr.  Thomas  in  1874  in  the  Landreau  case  v.  Peru,  Moore’s  Dig.,  VI, 
714-715. 


22 


JUDICIAL  SETTLEMENT 


it  will  generally  be  enforced  by  diplomatic  pressure,  notwith¬ 
standing  its  contractual  origin.37 

Arbitration. 

y.  Whatever  hesitation  there  may  have  been  on  the  part 
of  the  Executive  to  interpose  diplomatically  in  behalf  of  citi¬ 
zens  injured  through  the  breach  of  a  contract  concluded  with 
a  foreign  government,  the  Department  of  State  has  gen¬ 
erally  been  willing  to  submit  contract  claims  to  the  adjudica¬ 
tion  of  international  commissions,  and  these  commissions 
have  in  general  exercised  jurisdiction  over  contract  claims 
as  over  other  claims.38  In  instructions  given  by  Mr.  Pick¬ 
ering  on  October  22,  1799,  to  the  American  plenipotentiaries 
to  France,  the  envoys  were  directed  to  secure  the  adjustment 
of  “all  claims”  of  citizens  of  the  United  States  against  that 
government,  and  among  these  there  were  expressly  enumer¬ 
ated  the  “sums  due”  to  American  citizens  by  contracts  with 
the  French  Government,  or  its  agents.39 

37  Lord  John  Russell,  British  Foreign  Sec’y,  to  Sir  C.  L.  Wyke  (Mar. 
30,  1861),  52  St.  Pap.,  238,  quoted  also  in  Moore’s  Dig.,  VI,  719;  Claim 
of  Waring  Brothers,  railroad  contractors  (Gt.  Brit.)  v.  Brazil,  in 
which  Great  Britain  insisted  on  the  carrying  out  by  Brazil  of  a  decree 
which  appropriated  an  indemnity  for  the  loss  sustained  by  Waring 
Brothers  due  to  the  government  rescinding  the  contract.  Moore’s  Dig., 
VI,  720-721,  For.  Rel.,  1887,  54,  55.  The  French  claims  against  Vene¬ 
zuela  liquidated  under  the  convention  of  June  29,  1864,  Moore’s  Dig., 
VI,  711-712.  See  also  the  settlement  of  the  claim  of  W.  R.  Grace 
(U.  S.)  v.  Peru,  in  which  the  failure  of  the  government  to  carry  out  a 
judgment  against  it  was  construed  as  a  denial  of  justice  warranting 
diplomatic  intervention.  Mr.  Neill  to  Mr.  Hay,  Sec’y  of  State  (Nov.  19, 
1903),  For.  Rel.,  1904,  678. 

33  Contract  claims  have  been  submitted  to  general  mixed  commissions 
dealing  with  general  claims  (as,  for  example,  the  U.  S. -Mexican  com¬ 
missions  of  1839  and  1868,  the  U.  S. -Venezuelan  commissions  of  1885 
and  1903  and  many  others)  and  to  special  commissions  instituted  to  de¬ 
cide  single  claims  (as,  for  example,  the  claim  of  Metzger  &  Co.  (U.  S.) 
v.  Hayti,  October  18,  1899,  Day,  Arbitrator,  For.  Rel.,  1901,  262-276,  and 
that  of  the  San  Domingo  Improvement  Co.  (U.  S.)  v.  Dominican  Re¬ 
public,  Jan.  31,  1903,  For.  Rel.  1904,  270.  General  mixed  commissions 
have  assumed  jurisdiction  of  contract  claims  under  the  customary  inclu¬ 
sive  terms  of  the  protocol  “all  claims,”  and  even  “claims”  arising  out  of 
“injury  to  person  or  property  of  citizens.” 

39  Am.  St.  Pap.,  For.  Rel.,  vol.  2,  242,  301,  303 ;  see  also  Moore’s  Dig., 
VI,  707-708. 


OF  INTERNATIONAL  DISPUTES 


23 


By  the  convention  between  the  two  countries  of  April  30, 
1803,  for  the  “payment  of  sums  due”  by  France  to  citizens 
of  the  United  States,  provision  was  made  for  the  satisfaction 
of  “debts.”40  In  the  treaty  of  February  22,  1819,  between 
the  United  States  and  Spain  by  which  either  government 
renounced  “all  claims”  of  its  citizens  or  subjects  against 
the  other  government,  Mr.  Adams,  Secretary  of  State,  con¬ 
sidered  that  contract  claims  had  been  included  among  those 

renounced.41  Mr.  Adams  added  that  there  was  no  doubt  of 

» 

the  right  of  the  government  to  include  such  claims  in  the 
provisions  of  the  treaty. 

Practically  all  international  commissions,  where  the  terms 
of  submission  in  the  protocol  could  be  construed  as  suffi¬ 
ciently  broad,  have  exercised  jurisdiction  over  contract 
claims,  for  example,  the  United  States-Spanish  Commission 
of  February  22,  1819,  the  three  Mexican  commissions  of 
April  11,  1839,  of  March  3,  1849,  (Domestic  Commission), 
of  July  4,  1868,  the  United  States-British  Commission  of 
February  8,  1853,  and  August  18,  1910,  the  United  States- 
Peruvian  Commission  of  January  12,  1863,  the  United 
States-French  Commission  of  January  15,  1880,  the  United 
States- Venezuelan  Commission  of  December  5,  1885,  the 
Venezuelan  Commission  of  1903  sitting  at  Caracas,  and 
many  others.42  A  conflict  arose  in  the  commission  of  July 

40  Moore’s  Dig,  VI,  708. 

41  Moore’s  Dig,  VI,  717-718;  Moore’s  Arb,  4502-4505. 

42  See  Moore’s  Dig,  VI,  718;  Ralston  I,  Report  of  Venezuelan  Com¬ 
missions;  Moore’s  Arb,  3425-3590;  J.  Hubley  Ashton,  agent  of  the 
United  States  before  the  Mixed  Commission  with  Mexico  of  July  4, 
1868,  in  an  elaborate  argument  in  the  case  of  the  State  Bank  of  Hart¬ 
ford  (No.  535)  and  other  similar  cases,  opposing  a  motion  to  dismiss 
for  want  of  jurisdiction  over  contract  claims,  analyzed  minutely  the 
practice  of  the  United  States  and  the  jurisdiction  of  international  com¬ 
missions  in  the  matter  of  contract  claims,  especially  under  a  protocol 
submitting  “all  claims  .  .  .  arising  out  of  injuries  to  .  .  .  person  or 
property.”  He  cited  decisions  of  municipal  courts  and  international 


24 


JUDICIAL  SETTLEMENT 


4,  1 868,  due  to  the  difficulty  of  reconciling  vacillating  opin¬ 
ions  with  proper  judicial  action.  Commissioners  Wads¬ 
worth,  Palacio  and  Umpire  Lieber  (though  the  latter  was 
not  always  consistent)  had  allowed  claims  on  contracts 
concluded  between  citizens  of  the  United  States  and  agents 
of  Mexico  for  the  furnishing  of  arms,  munitions,  and  other 
material  to  the  Mexican  Government,  on  the  ground  that  the 
failure  to  pay  for  such  goods  constituted  an  “injury”  to  the 
“property”  of  an  American  citizen  under  the  terms  of  the 
protocol.  The  Mexican  Commissioner,  Palacio,  while  ad¬ 
hering  to  the  view  of  his  colleagues  that  contract  claims 
were  within  the  jurisdiction  of  the  commission,  believed  that 
a  demand  and  refusal  of  payment  was  a  condition  precedent 
to  the  allowance  of  the  claim.  Subsequently  upon  the  death 
of  Dr.  Lieber  and  the  resignation  of  Commissioner  Palacio, 
Sir  Edward  Thornton  became  umpire  and  Senor  Zamacona 
the  Mexican  Commissioner.  Thereupon  a  different  view 
was  taken  as  to  the  jurisdiction  of  the  commission  over  con¬ 
tract  claims.  Sir  Edward  Thornton  considered  that  he 
ought  to  follow  the  practice  of  the  Executive  of  exercising 
discretion  in  assuming  jurisdiction  of  contract  claims,  for 
which  reason,  while  admitting  the  jurisdiction  of  the  com¬ 
mission  over  contract  claims,  he  declined  to  allow  such  as 
were  based  upon  voluntary  contract,  in  the  absence  of  clear 
proof  of  the  contract  and  proof  that  gross  injustice  had  been 
done  by  the  defendant  government.  The  decisions  of  the 

tribunals  to  show  that  under  the  terms  “all  claims”  and  “injuries” 
breaches  of  contract  were  included.  Among  others  he  cited  decisions 
of  the  commissions  under  the  treaty  with  Spain,  1819  (8  Stat.  L.,  258)  : 
with  Great  Britain,  1853  (10  Stat.  L.,  998)  ;  with  New  Granada,  1857 
(12  Stat.  L.,  985)  ;  with  Costa  Rica,  1860  (12  Stat.  L.,  1139)  ;  with  Co¬ 
lombia,  1864  (13  Stat.  L.,  685)  ;  with  Ecuador,  1862  (13  Stat.  L.,  633)  ; 
with  Peru,  1863  (13  Stat.  L.,  639)  ;  with  Venezuela,  1866  (16  Stat.  L., 
316),  and  with  Peru,  1868  (16  Stat.  L.,  349).  He  also  mentioned  the 
three  Mexican  commissions.  The  argument  is  on  file  in  the  Department 
of  State  Library. 


OF  INTERNATIONAL  DISPUTES 


25 


commission,  therefore,  are  at  times  contradictory,  claims  of 
exactly  the  same  nature  having  been  allowed  by  Wadsworth, 
Palacio  and  Lieber,  and  rejected  when  Zamacona  became  the 
Mexican  Commissioner  and  Thornton  the  umpire.43 

There  have  been  occasions  when  international  commis¬ 
sions  would  not  exercise  jurisdiction  over  contract  claims.44 
It  was  agreed  by  the  United  States  and  Spain  in  the  claims 
convention  of  February  12,  1871,  that  the  arbitrators  were 
not  to  have  jurisdiction  of  claims  growing  out  of  contract.45 

Where  jurisdiction  is  exercised  by  mixed  commissions,  as 
is  the  general  rule,  the  contract  will  be  examined  as  would 
any  other  instrument  open  to  judicial  construction.40  Among 
other  factors  the  authority  of  the  person  contracting  as 


43  A  full  discussion  of  this  perplexing  question  before  the  commission 
was  undertaken  by  Mr.  Commissioner  Wadsworth  in  the  case  of  Tread¬ 
well  &  Co.  (U.  S.)  v.  Mexico,  July  4,  1868,  quoted  at  length  in  Opinions 
of  the  Commission,  vol.  4,  248,  and  vol.  7,  383.  The  claims  were  al¬ 
lowed  in  the  cases  of  Manasse,  Moore’s  Arb.,  3462-3464 ;  Iturria,  Moore’s 
Arb.,  3464;  Moses,  Assignee,  Moore’s  Arb.,  3465;  Newton,  Moore’s 
Arb.,  3465 ;  Morrill,  Moore’s  Arb.,  3465,  and  were  disallowed  by  Thorn¬ 
ton,  umpire,  in  cases  of  supplies  furnished,  services  rendered  and  other 
claims  based  on  voluntary  contract  in  the  Phipps  case,  Moore’s  Arb., 
3468;  Treadwell,  Moore’s  Arb.,  3468;  Pond,  Moore’s  Arb.,  3467;  Nolan, 
Moore’s  Arb.,  3484;  Light,  Moore’s  Arb.,  3484;  Wallace,  Moore’s  Arb., 
3475 ;  Kennedy  &  King,  Moore’s  Arb.,  3474;  State  Bank  of  Hartford, 
Moore’s  Arb.,  3473 ;  Shumaker,  Moore’s  Arb.,  3472 ;  Chase,  Moore's 
Arb.,  3469;  Kearney,  Moore’s  Arb.,  3468;  Sturm  (dictum),  Moore’s 
Arb.,  2756;  Dennison,  Moore’s  Arb.,  2766;  De  Witt,  Moore’s  Arb., 
3466;  Widman,  Moore’s  Arb.,  3467.  Lieber’s  decision  in  disallowing 
the  claim  of  Thore  de  Lespes  for  the  hire  of  a  steam  tug  to  Mexico 
(Moore’s  Arb.,  3466)  is  inconsistent  with  his  other  opinions. 

44  U.  S. -British  Mixed  Commission  of  May  7,  1871.  See  Hubbell 
(U.  S.)  v.  Great  Britain,  Moore’s  Arb.,  3484-6;  Hale’s  Rep.,  40;  How¬ 
ard’s  Rep.,  160,  752,  754. 

45  Agreement  of  Feb.  11-12,  1871,  art.  15,  Moore’s  Arb.,  4802-4803. 

46  Turnbull,  Manoa,  Limited,  Orinoco,  et  al.  (U.  S.)  v.  Venezuela, 
Feb.  17,  1903,  Ralston  I,  244,  where  Barge  held  a  certain  contract  void 
ab  initio.  See  also  American  Electric  and  Manufacturing  Co.  (U.  S.) 
v.  Venezuela,  Feb.  17,  1903,  Ralston  1,  250,  where  Barge  held  a  promise 
to  declare  void  an  existing  contract  as  an  illegal  promise.  See  also 
Frear  (U.  S.)  v.  France,  Jan.  15,  1880,  Moore’s  Arb.,  3488-3491 ;  Bout- 
well’s  Rep.,  202,  where  it  was  found  that  the  claimant  had  not  per¬ 
formed  the  contract  on  his  part. 


2b 


JUDICIAL  SETTLEMENT 


agent  for  the  government  is  always  closely  examined.  The 
general  rules  of  agency  are  applied/7  although  municipal 
courts  have  made  distinctions  between  cases  in  which  the 
government  rather  than  a  private  individual  is  the  principal. 

A  contract  for  unneutral  service  will  as  a  general  rule  not 
be  enforced  either  by  municipal48  or  international40  courts. 
There  have  been  a  few  occasions  where  international  com¬ 
missions  on  the  ground  of  equity  or  waiver  of  the  illegality 
have  made  awards  on  unneutral  contracts.  This  is  especially 
so  where  the  political  party  aided  was  successful  or  became 
at  least  a  de  facto  government.50 

The  domestic  commission  under  the  act  of  March  3,  1849, 
held  that  while  the  United  States  was  not  justified  in  press¬ 
ing  a  claim  growing  out  of  services  in  violation  of  the  claim¬ 
ant’s  neutrality  as  a  citizen  of  a  neutral  nation,  yet  if  Mex¬ 
ico,  the  nation  against  whom  such  claim  existed,  sees  proper 
to  waive  the  objection  and  agrees  to  recognize  the  claim,  the 


47  Lew  Wallace  (U.  S.)  v.  Mexico,  July  4,  1868,  Moore’s  Arb.,  3475- 
3476,  in  which  case  the  Mexican  agent  had  acted  beyond  the  scope  of  his 
authority,  for  which  reason  the  contract  was  held  not  binding  on 
Mexico.  See  also  Beales,  Nobles  &  Garrison  case  (U.  S.)  v.  Vene¬ 
zuela,  Dec.  5,  1885,  Moore’s  Arb.,  3548-3564.  In  Zander  (U.  S.)  v. 
Mexico,  March  3,  1849,  Moore’s  Arb.,  3433,  the  failure  to  show  the 
original  authority  of  the  agent  or  the  subsequent  ratification  of  his  acts 
by  the  government  barred  the  claim.  In  Trumbull  (Chile)  v.  United 
States,  Aug.  7,  1892,  an  award  was  made  on  the  ground  that  claimant 
had  a  right  to  assume  that  the  United  States  minister  in  engaging  his 
legal  services  was  authorized  so  to  do. 

48  Kennett  et  al.  v.  Chambers,  14  How.,  38;  Du  Wurtz  v.  Hendricks, 
9  Moore’s  C.  B.  Rep.,  586;  see  also  Kent’s  Commentaries,  I,  116. 

49  Cucullu  (U.  S.)  v.  Mexico,  July  4,  1868,  Moore’s  Arb.,  3478-3479; 
Fitch  (U.  S.)  v.  Mexico,  July  4,  1868,  Moore’s  Arb.,  3476-3477 ;  Wallace 
(U.  S.)  v.  Mexico,  July  4,  1868,  Moore’s  Arb.,  3475-3476. 

50  Lake  (U.  S.)  v.  Mexico,  July  4,  1868,  Moore’s  Arb.,  2755,  Opinion 
by  Palacio,  Commissioner;  Chew  (U.  S.)  v.  Mexico,  April  11,  1839, 
Moore’s  Arb.,  3428,  and  other  cases  there  cited;  Hunter,  Duncan  et  al. 
(U.  S.)  v.  Mexico,  April  11,  1839,  Moore’s  Arb.,  3427 ;  Cucullu  (U.  S.) 
v.  Mexico,  July  4,  1868,  Moore’s  Arb.,  3478-3479;  claims  of  Stephen 
Codman,  No.  86,  and  John  and  Robert  Gamble,  No.  1783,  were  allowed 
by  the  mixed  commission  under  the  treaty  with  Spain  of  1819,  cited  in 
Ashton’s  argument,  supra. 


OF  INTERNATIONAL  DISPUTES 


27 


tribunal  cannot  assume  for  it  a  defense  expressly  waived.*1 

Speculative  contracts  are  not  enforced.52  The  service 
itself  where  of  an  extraordinary  character,  such  as  the  giv¬ 
ing  of  advice  in  battle,  has  been  held  not  measurable  in 
money  damages,  but  calling  rather  for  a  monument  or  some 
other  mark  of  national  gratitude.53  While  we  have  seen  that 
as  a  general  rule  a  claim  for  voluntary  services  is  not  pressed 
by  the  Department  of  State,  international  commissions,  with 
the  exception  of  the  United  States-Mexican  Commission  of 
1868  after  Thornton  became  Umpire,  have  not  hesitated  to 
allow  damages  for  services  thus  rendered.  They  have  occa¬ 
sionally  held,  however,  that  a  demand  for  payment  must  be 
made  upon  the  debtor  government.54  Where  the  debt  has 
been  acknowledged  there  is  usually  no  hesitation  either  on 
the  part  of  the  government  or  of  international  commissions 
respectively  to  demand  and  to  allow  damages  on  claims 

51  Meade  (U.  S.)  v.  M  xico,  Act  of  March  3,  1849,  Moore’s  Arb., 

3430,  3432.  Other  commissions  have  held  that  only  the  nation  whose 
laws  have  been  violated  can  waive  the  illegality,  and  not  the  state  aided 
by  the  unneutral  act. 

52  Taussig  (U  .S.)  v.  Mexico,  July  4,  1868,  Moore’s  Arb.,  3472-3473, 
where  the  nonfulfillment  of  a  contract  for  the  sale  of  vessels,  etc.,  to  a 
government,  said  vessels  having  been  purchased  as  a  speculation  on 
their  subsequent  sale,  was  held  not  to  be  an  injury  to  person  or  prop¬ 
erty  within  the  meaning  of  the  protocol.  See  also  Oliva  (Italy)  v. 
Venezuela,  Feb.  13,  1903,  Ralston  I,  780;  see  also  American  Trading  Co. 
v.  Chinese  Indemnity  Fund,  47  Ct.  Cl.,  563,  569. 

53  O’Dwyer  (U.  S.)  v.  Venezuela,  Dec.  5,  1885,  Moore’s  Arb.,  3568. 

54  Cucullu  (U.  S.)  v.  Mexico,  July  4,  1868,  Moore’s  Arb.,  3483. 
Palacio  in  a  dictum  said  that  under  the  word  “injury”  a  mere  omission 
of  payment  of  a  debt  makes  it  necessary  to  bring  it  to  the  knowledge  of 
the  defendant  government.  Throughout  the  commission  Palacio  held 
that  notice  and  a  refusal  of  payment  were  conditions  precedent  to  a 
valid  claim.  Union  Land  Company  et  al.  (U.  S.)  v.  Mexico,  Act  of 
Congress,  Mar.  3,  1849,  Moore’s  Arb.,  3440,  service  rendered  in  securing 
immigrants.  Meade  (U.  S.)  v.  Mexico,  Mar.  3,  1849,  Moore’s  Arb., 

3431,  expenses  incurred  in  fitting  out  vessel  in  service  of  Mexico.  The 
“Hermon,”  Green  (U.  S.)  v.  Mexico,  April  11,  1839,  Moore’s  Arb.,  3425, 
repairs  and  ship  stores  furnished  to  a  vessel  of  war.  Boulton  e t  al. 
(U.  S.)  v.  Venezuela,  Feb.  17,  1903,  Ralston  I,  26-29,  carrying  the  mails. 
Turini  (U.  S.)  v.  Venezuela,  Feb.  17,  1903,  Ralston  I,  51-52,  services 
rendered  as  a  sculptor.  The  Great  Venezuelan  Railroad  (Germany)  v. 


28 


JUDICIAL  SETTLEMENT 


arising  out  of  contract.65.  Such  acknowledgment  has  even 
been  held  to  purge  the  contract  of  illegality,  as,  for  example, 
the  unneutral  character  of  the  act. 


Bonds  of  Public  Debt. 

We  come  now  to  the  third  class  of  contract  claims,  those 
arising  out  of  a  foreign  government’s  unpaid  bonds,  held  by 
a  citizen.  These  obligations  of  the  State  differ  in  many  re¬ 
spects  from  the  contractual  obligations  arising  out  of  a 
contract  for  concessions  or  the  execution  of  public  works. 
In  the  latter  case,  the  government  has  entered  into  relations 
with  a  definite  person;  in  the  former,  as  bond's  are  usually 
payable  to  bearer  and  negotiable  by  mere  delivery,  the  State 


Venezuela,  Feb.  13,  1903,  Ralston  I,  638,  railroad  forcibly  used  to  carry 
troops.  Hudson  Bay  Co.  (Gt.  Brit.)  v.  U.  S.,  Feb.  8,  1853,  Moore’s 
Arb.,  3459,  goods  supplied  to  shipwrecked  sailors  and  other  citizens  of 
the  United  States  to  secure  their  relief  from  captivity  by  savage  Indians 
and  in  repelling  attacks,  which  service  the  government  should  have  ren¬ 
dered.  Eldredge  (U.  S.)  v.  Peru,  Jan.  12,  1863,  Moore’s  Arb.,  3462,  sup¬ 
plies  furnished  to  Peruvian  army.  Dundonald  (Gt.  Brit.)  v.  Brazil, 
April  22,  1873 ;  Moore’s  Arb.,  2107-2108,  military  service  rendered  by 
Admiral  Lord  Cochrane.  Arbitration  between  Great  Britain  and  Por¬ 
tugal  in  1840,  for  compensation  due  British  soldiers  and  officers  for 
services  rendered  to  Portugal  in  her  war  of  liberation,  La  Fontaine, 
op.  cit.,  93,  636.  Underhill  (U.  S.)  v.  Mexico,  Mar.  3,  1849,  Moore’s 
Arb.,  3433,  charter  of  a  vessel.  Ulrick  (U.  S.)  v.  Mexico,  Mar.  3,  1849, 
Moore’s  Arb.,  3434,  lease  of  house  for  legation. 

On  the  services  rendered  to  Mexico  by  American  citizens  see  a 
pamphlet,  “The  Republic  of  Mexico  and  its  American  creditors.  The 
unfulfilled  obligations  of  the  Mexican  Republic  to  citizens  of  the  U.  S. 
from  whom  it  obtained  material  aid  on  credit.”  (Indianapolis,  Douglass 
&  Conner,  1869,  94  pp.) 

65  Sparrow  (U.  S.)  v.  Peru,  For.  Rel.,  1895,  Pt.  II,  1036-1055;  settled 
in  1896,  For.  Rel.,  1896,  492-494.  Lord  J.  Russell  to  Sir  C.  K.  Wyke 
(Mar.  30,  1861)  in  the  case  of  British  bondholders  whose  unpaid  bonds 
were  converted  into  a  liquidated  debt  against  Mexico,  St.  Pap.,  vol.  52, 
238-239.  Cox  &  Elkins  (U.  S.)  v.  Mexico,  Mar.  3,  1849,  Moore’s  Arb., 
3430.  Parrott  (U.  S.)  v.  Mexico,  Mar.  3,  1849,  Moore’s  Arb.,  3430. 
Eckford  (U.  S.)  v.  Mexico,  Mar.  3,  1849,  Op.  435  (not  in  Moore)  ; 
Mercantile  Insurance  Co.  (U.  S.)  v.  Mexico,  Mar.  3,  1849,  Moore’s 
Arb.,  3429.  Meyer  (U.  S.)  v.  Mexico,  Mar.  3,  1849,  Moore’s  Arb.,  2380. 
Rosen  wig,  Crosby  et  al.  (U.  S.)  v.  Peru,  Dec.  4,  1868,  Moore’s  Arb., 
1651-1652.  Hammaken  (U.  S.)  v.  Mexico,  Mar.  3,  1849,  Moore’s  Arb., 
3471.  Corcuera  (Spain)  v.  Venezuela,  Feb.  13,  1903,  Ralston  I,  936. 


OF  INTERNATIONAL  DISPUTES 


29 


never  knows  to  whom  it  is  indebted  until  the  bonds  are  pre¬ 
sented  for  payment. 

Some  publicists  regard  such  a  bond  as  a  contractual  obli¬ 
gation  subject  to  the  same  rules,  both  in  interpretation  and 
enforcement,  as  ordinary  contract  debts.50  Hall  even  goes 
so  far  as  to  liken  in  principle  a  breach  of  a  monetary  agree¬ 
ment,  e.  g.,  the  non-payment  of  public  loans,  to  tortious  in¬ 
juries  committed  by  the  government,  though  he  admits  a 
difference  in  practice  in  enforcing  the  two  classes  of  claims.67 
The  unpaid  bond  of  a  foreign  government  held  by  a  citizen 
has  been  a  frequent  and  most  perplexing  cause  of  interna¬ 
tional  conflict. 

Before  discussing  the  nature  of  the  enforcement  of  rights 
arising  out  of  public  debts,  let  us  examine  the  nature  of  the 
contract  and  the  law  governing  the  transaction  of  subscrib¬ 
ing  to  the  public  loan  of  a  foreign  state.  If  the  lending  citi¬ 
zen  is  domiciled  in  the  country  emitting  the  loan,  we  may  for 
many  purposes  regard  the  contract  as  subject  to  the  law  of 
the  debtor  country.  When,  however,  as  is  generally  the 
case  in  external  loans,  the  lending  citizen  or  subsequent 
transferee-holder  is  domiciled  not  in  the  debtor  country,  but 
in  his  own  or  some  other  state,  we  meet  difficult  questions  in 
the  conflict  of  laws  and  in  international  law.  Is  the  trans¬ 
action  one  of  private  or  public  law,  and  if  private,  what 
law  governs  its  interpretation? 

In  the  first  place  we  may  admit  that  a  contract  has  been 
concluded.  If  it  is  a  contract  of  private  law  concluded  by 
the  state  in  its  capacity  as  an  ordinary  contractor  ( jure  getp- 

56  Vattel,  Law  of  Nations,  Bk.  II,  Ch.  XIV.  §§  214-216;  Phillimore, 
International  Law  (3rd  ed.),  vol.  II,  Ch.  Ill,  8  et  seq.  See  opinion  of 
Findlay,  commissioner,  in  case  of  Aspinwall  before  U.  S. -Venezuelan 
commission  of  1885,  Moore’s  Arb.,  3650. 

67  Hall,  International  Law  (6th  ed.),  276. 


30 


JUDICIAL  SETTLEMENT 


Homs')  **  there  would  be  some  ground  for  asserting  that 
the  contract  is  subject  to  the  local  law  of  the  debtor  state,69 
or  as  the  contract  is  often  to  be  performed  in  the  country  of 
the  lending  citizen,  where  the  interest  and  principal  are  some¬ 
times  to  be  paid,  that  the  law  of  the  place  of  performance 
governs.  Again,  the  loan  may  be  subscribed  in  a  third  state, 
as,  for  example,  where  a  Chinese  loan  is  underwritten  by  a 
New  York  banker,  the  individual  bonds  being  held  by  citi¬ 
zens  of  Germany;  the  loan  having  been  made  in  a  third 
state,  the  lex  loci  might  be  regarded  as  the  law  governing 
the  contract.  Other  possibilities  have  been  suggested,  as, 
for  example,  where  the  loan  has  been  guaranteed,  that  the 
law  of  the  guaranteeing  state  governs,60  or  that  the  parties 
themselves  may  agree  on  the  law  governing  the  contract.61 

If  the  contract  were  concluded  between  individuals  or  be¬ 
tween  a  municipal  corporation  and  an  individual,  the  above 
theories  might  warrant  consideration.  The  factor  which 
makes  the  public  loan  a  contract  sui  generis  is  that  one  of 
the  contracting  parties  is  a  sovereign  and  therefore  not  sub- 


58  We  cannot  here  discuss  the  distinctions  betv^een  contracts  made  by 
a  government  in  its  capacity  as  a  business  corporation  and  engagements 
contracted  in  its  character  as  a  sovereign.  We  may  merely  note  the 
usual  rule  of  the  suability  of  the  government  on  contracts  of  the  former 
category,  and  its  immunity  in  the  case  of  contracts  of  the  latter  descrip¬ 
tion. 

59  Freund,  G.  S. :  Die  Rechtsverhaltnisse  der  offentlichen  Anleihen 
(Berlin,  1907),  64  et  seq.  This  is  probably  the  most  thoughtful  book 
on  the  subject  of  public  loans.  Loening,  Edgar:  Die  Gerichtsbarkeit 
iiber  fremde  Staaten  und  Souverane  (Halle,  1903),  256  and  authorities 
there  cited.  See  also  Freund,  G.  S.  Der  Schutz  der  Gliiubiger  gegeniiber 
auswartigen  Schuldnerstaaten  (Berlin,  1910),  14.  Pflug,  Karl:  Staats- 
bankerott  und  internationales  Recht  (Miinchen,  1898),  15-16.  Cuvelier 
in  Rev.  de  droit  international  (1888),  111. 

G0  Wuarin,  Albert:  Essai  sur  les  emprunts  d’etats  (Paris,  1907),  88 
ct  scq.  Imbert,  Henri  M. :  Les  emprunts  d’etats  etrangers  (Paris,  1905), 
50  ct  scq.,  96. 

61  Meili,  Fr. :  Das  internationale  Zivil-  und  Plandelsrecht,  II,  57. 
Clerin,  Georges :  Inexecution  par  un  etat  de  ses  engagements  financiers 
exterieurs  (Dijon,  1908). 


OF  INTERNATIONAL  DISPUTES 


ject  to  the  ordinary  rules  of  legal  obligation,  and  the  other  a 
non-resident  alien,  against  whom  the  local  territorial  law  is 
not  enforceable.62  The  debt  is  generally  authorized  and 
created  by  an  act  of  legislation,  which  escapes  all  judicial  re¬ 
view.  The  inherent  reservation  of  the  possibility  of  modify¬ 
ing  the  terms  of  the  loan,  suspending  or  even  repudiating  it 
by  an  act  of  sovereignty  similar  to  that  which  created  it,  has 
led  some  writers  to  the  conclusion  that  the  obligation  of  the 
state  is  one  of  honor  only,  a  moral,  and  not  a  legal  obliga¬ 
tion,63  so  far  at  least  as  its  enforcement  in  municipal  courts 
is  concerned.  Freund  tells  us  that  several  German  writers 
regard  it  as  discretionary  with  the  state  whether  it  will  take 
up  foreign  loans.64  Zorn  even  regards  the  payment  of  in¬ 
terest  as  the  exercise  of  a  sovereign  right.65  The  failure  of 
a  state  therefore  to  take  up  a  public  loan,  not  being  justicia¬ 
ble  in  municipal  courts,  has  been  regarded  as  not  legally  a 
breach  of  a  contractual  obligation.  This  confuses  the  nature 
of  the  contract  with  the  means  of  its  enforcement. 

The  foreign  citizen  would  never  lend  his  money  on  such 
uncertain  security.  He  does  in  no  sense  regard  himself  as 
subject  to  the  local  law  of  the  debtor  state,  as  he  has  never 
entered  its  territorial  jurisdiction.  His  rights  as  lender  and 
the  obligations  of  the  debtor  are  derived  from  the  contract 
of  loan  which  neither  the  creditor  nor  his  government  re¬ 
gards  as  purely  one  of  private  law  to  be  interpreted  by  the 
local  courts  of  the  debtor  state. 

62  Freund,  Der  Schutz  der  Glaubiger,  etc.,  15;  Wuarin,  op.  cit.,  34. 

63  Bar,  Ludwig  von.  The  theory  and  practice  of  private  international 
law  (2nd  ed.,  trans.  by  G.  R.  Gillespie,  Edinburgh,  1892),  1152,  and 
certain  French  cases  there  cited.  Politis,  Nicholas  E. :  Les  emprunts 
d’etat  en  droit  international  (Paris,  1894),  280.  Milanowitsch,  cited  by 
Freund,  Rechtsverhaltnisse,  etc.,  56. 

64  Freund,  Schutz  der  Glaubiger,  13. 

65  Zorn  in  Bankarchiv,  VI,  106,  cited  by  Freund,  Schutz  der  Glau¬ 
biger,  13. 


32 


JUDICIAL  SETTLEMENT 


The  mixed  private  and  public  nature  of  the  transaction  of 
subscribing  to  a  foreign  loan  shows  that  it  partakes  of  the 
nature  of  an  international  contract,  and  that  its  breach,  if 
not  justiciable  before  municipal  courts,  does  give  rise,  under 
certain  circumstances,  to  the  diplomatic  interposition  of  the 
national  government  of  the  creditor,  and  in  practice  has  at 
times  resulted  in  armed  intervention.  These  questions  we 
shall  discuss  hereafter. 

The  transaction  of  subscription  to  a  foreign  public  loan 
is  not  purely  an  international  contract,  for  this  could  be  con¬ 
cluded  only  by  states  and  not  by  a  state  and  the  subjects  of 
another  state.  The  contract  is,  however,  by  its  nature  under 
the  protection  of  international  law  and  is  what  Bluntschli 
called  a  quasi-international  contract.66  There  is  certainly 
some  analogy  between  a  contract  (i)  between  Venezuela 
and  Germany  and  (2)  between  Venezuela  and  a  German 
citizen  for  the  building  of  a  vessel  or  the  borrowing  of 
money.  Neither  contracting  party  in  these  cases  would  be 
willing  to  submit  to  the  national  municipal  law  of  the  other. 

If  we  turn  to  the  jurisdiction  of  courts  and  the  means  of 
enforcement  of  the  contract,  the  international  nature  of  the 
legal  relation  created  will  become  apparent.  While  in  theory 
the  jurisdiction  of  the  courts  of  the  debtor  state  may  be  in¬ 
voked,  several  contingencies  in  connection  with  the  public 
loan  must  always  be  borne  in  mind.  First,  the  debtor  state 

66  Bluntschli,  Das  moderne  Volkerrecht  der  civilisirten  Staaten  (Nord- 
lingen,  1878,  3rd  ed.),  §§  442,  433  (b).  Pflug,  op.  cit.,  40-41. 

The  argument  against  the  international  nature  of  the  contract  of  pub¬ 
lic  loan,  that  individuals  cannot  derive  rights  from  international  agree¬ 
ments,  as  they  are  not  subjects  of  international  law,  has  been  greatly 
weakened  by  the  Hague  Convention  for  the  establishment  of  an  inter¬ 
national  prize  court,  and  the  growing  opinion,  shared  by  authorities  like 
Westlake  and  Bonfils,  that  individuals  may  derive  subjective  rights  from 
international  agreements.  See  aso  art.  2  of  the  Convention  establishing 
the  Central  American  Court  of  Justice. 


OF  INTERNATIONAL  DISPUTES 


33 


may  or  may  not  permit  itself  to  be  sued.67  While  most 
states  now  freely  subject  themselves  to  suit  in  cases  of  or¬ 
dinary  contracts,  many  states  still  decline  to  extend  this 
right  so  far  as  the  public  debt  is  concerned.  Many  states 
of  the  United  States  have  repudiated  their  debts  and  have 
declined  to  permit  themselves  to  be  sued  on  them.68  Again, 
as  the  public  loan  is  created  by  legislation,  an  act  of  sov¬ 
ereignty,  so  it  may  be  suspended,  reduced  or  even  repudi¬ 
ated  by  a  similar  act  of  sovereignty,  by  which  the  national 
courts  are  bound.  The  creditor,  therefore,  is  juridically 
opposed  to  a  sovereign  who  may  with  perfect  legality,  by  an 
act  of  sovereignty,  deprive  him  of  his  substantive  right  and 
of  his  remedy.  In  other  words,  the  state  in  the  exercise 
of  its  sovereign  powers  may  regulate  the  execution  of  its 
contract  of  loan  in  any  manner  conformable  with  its  public 
interest.69  Again,  the  improbability  in  many  states  of  se¬ 
curing  an  impartial  judicial  determination  by  national  courts 
in  cases  of  this  kind  makes  the  creditor’s  position  precarious. 
To  sue  the  debtor  state  on  a  public  loan,  therefore,  is  prac¬ 
tically  useless.  There  are  some  states  whose  national  courts 
might  grant  a  creditor  relief.  These  are  the  states  that  are 
never  sued  on  their  national  debts. 


07  Twycross  v.  Dreyfus,  36  Law  Times  Rep.  (N.  S.)  (July  21,  1877), 
752,  755.  See  also  Moulin,  La  Doctrine  de  Drago  (Paris,  1908),  86 
et  seq. 

08  Scott,  William  A.  The  repudiation  of  state  debts  (New  York, 
1893),  particularly  Chap.  I,  in  which  the  constitutional  and  legal  aspects, 
with  the  decisions  of  the  Supreme  Court  and  state  courts  are  lucidly 
presented. 

69  Lewandowski,  Maurice.  De  la  protection  des  capitaux  empruntes 
en  France  par  les  Etats  etrangers  (Paris,  1896),  24  et  seq.  While  ap¬ 
parently  accepted  as  a  principle,  the  theory  is  by  no  means  undisputed 
that  a  state  contracts  a  public  loan  in  its  character  as  a  sovereign,  jure 
imperii,  and  is  not  bound  contractually  to  its  creditors.  See  Moulin, 
H.  A.,  La  Doctrine  de  Drago  (Paris,  1908),  76  et  seq.;  Freund,  Rechts- 
verhaltnisse,  etc.,  59-61 ;  speech  of  M.  Ruy  Barbosa  (July  23,  1907)  at 
the  Hague  Conference  of  1907,  Actes  et  Discours  de  M.  Ruy  Barbosa, 
60  et  seq.;  see  also  the  recent  case  of  De  Andrade  v.  the  government  of 
Brazil,  reported  in  Clunet  (1913),  vol.  40,  237. 


34 


JUDICIAL  SETTLEMENT 


To  sue  the  debtor  state  before  the  courts  of  the  creditor  is 
still  less  practicable.  As  a  general  rule  municipal  courts  de¬ 
cline  to  take  jurisdiction  over  foreign  states  as  defendants.70 
The  exception  of  voluntary  submission  and  questions  con¬ 
cerning  real  estate  are  hardly  of  practical  significance  for  the 
present  case. 

The  French  courts  take  the  firm  position  that  bondholders 
of  the  debt  of  a  foreign  state  cannot  sue  before  the  French 
courts.71  The  English  courts  have  usually  declined  to  exer¬ 
cise  jurisdiction  over  foreign  states,  and  in  the  case  of  bond¬ 
holders  of  foreign  debts  have  unequivocably  declared  them¬ 
selves  jurisdictionally  incompetent.72  This  is  the  rule  of  the 
German  and  Austrian  courts73  and  has  been  the  uniform 


70  Bynkershoek  is  the  father  of  this  theory. 

Loening,  E.  Die  Gerichtsbarkeit  fiber  fremde  Staaten  u  Souverane 
(Halle,  1903)  is  one  of  the  leading  works  on  the  subject.  The  opinions 
of  courts  are  discussed,  p.  23  et  seq.;  the  opinions  of  writers,  p.  55  et 
seq.  See  also  Brie,  Fischer  &  Fleischmann,  Zwangsvollstreckung  gegen 
fremde  Staaten  u  Kompetenzkonflikt  (Breslau,  1910),  containing  three 
opinions  rendered  at  the  request  of  Russia  in  the  case  of  Hellfeld  v. 
Russia  on  the  question  of  the  jurisdiction  of  German  courts  over  funds 
of  Russia  in  Germany  and  the  possibility  of  execution  against  them. 
The  translation  of  the  decision  of  the  German  court  for  the  determina¬ 
tion  of  jurisdictional  conflicts  in  the  now  famous  Hellfeld  case  may  be 
found  in  5  Amer.  Journ.  of  Int.  Law  (1911),  490-519. 

See  on  the  whole  subject  an  able  article  by  Droop  in  Gruchot’s  Bei- 
triige  zur  Erlauterung  des  deutschen  Rechts,  vol.  26,  289-316,  in  which 
the  decisions  of  courts  are  carefully  reviewed.  Some  writers  have  made 
a  distinction  as  to  jurisdiction  over  foreign  states,  depending  upon 
whether  the  transaction  in  question  involved  the  defendant  state  in  its 
capacity  as  a  sovereign  ( jure  imperii)  or  as  a  fiscus  ( jure  gentionis), 
granting  immunity  from  jurisdiction  in  the  former  case,  but  asserting  it 
in  the  latter.  The  most  noteworthy  of  these  writers  are  Laurent,  Droit 
civil  international  (Paris,  1880),  vol.  3,  42-103,  and  von  Bar,  op.  cit., 
1101  et  seq.  They  have  been  followed  by  a  number  of  courts,  notably 
those  of  Belgium  and  Italy. 

71  See  the  cases  cited  in  Weiss,  A.  Traite  de  droit  international  prive, 
vol.  5,  94;  Loening,  op.  cit.,  45. 

72  Westlake,  J.  A  treatise  on  private  international  law  (London, 
1905,  4th  ed.),  §§  190,  192  and  cases  there  cited.  See  particularly  Twy- 
cross  v.  Dreyfus  (1877),  36  Law  Times  Rep.  (N.  S.),  755,  757,  decision 
of  Jessel,  M.  R. 

73  Citations  of  cases  in  Brie,  op.  cit.,  and  Loening,  op.  cit.,  23  et  seq. 


OF  INTERNATIONAL  DISPUTES 


35 


rule  in  courts  of  the  United  States.74  In  Belgium  and  Italy 
the  courts  seem  to  have  adopted  the  distinction  of  adminis¬ 
trative  law  between  transactions  of  the  state  undertaken  jure 
imperii  and  jure  gentionis ,  and  to  have  exercised  jurisdiction 
in  the  latter  case.75 

If  there  were  still  any  doubt  as  to  the  impracticability  of 
relief  by  suit  against  a  foreign  government  in  municipal 
courts,  it  would  be  dispelled  by  the  certainty  that  execution 
of  the  judgment,  even  if  obtainable,  is  practically  impossible. 
No  legal  process  lies  against  the  property  of  a  foreign  state, 
and  even  the  jurisdictional  distinction  made  by  some  courts 
between  acts  jure  imperii  and  jure  gentionis  is  disregarded 
in  the  matter  of  execution.  The  exception  of  actions  involv¬ 
ing  real  estate  does  not  concern  us  here.  Even  attachment 
and  garnishment  proceedings  against  the  movable  property 
of  foreign  sovereigns  are  almost  uniformly  dismissed.76 

It  is  thus  apparent  that  national  municipal  courts,  either 
of  the  debtor  state  or  of  the  country  of  the  creditor,  are  un¬ 
able  to  secure  the  unpaid  creditor  any  remedy.  He  is  not 
left  helpless,  however.  The  sanction  for  a  violation  of  his 
rights  is  found  in  international  law  and  practice,  in  that 
states  have  frequently  interfered  in  behalf  of  their  creditor 
subjects  to  secure  the  payment  of  unfulfilled  national  obliga¬ 
tions  of  foreign  states.  Before  examining  the  legitimacy  of 
diplomatic  interposition  and  intervention  for  such  unpaid 

74  Moore,  J.  B.,  in  his  American  notes  to  Dicey,  A.  V.  A  digest  of 
the  laws  of  England  with  reference  to  the  conflict  of  laws  (London, 
1896),  p.  229.  See  leading  case  of  Schooner  Exchange  v.  McFaddon 
(1812),  7  Cranch,  116;  30  Cyc.,  104,  and  cases  there  cited. 

75  Cases  cited  in  Loening,  op.  cit.,  52-54. 

76  Brie,  op.  cit.,  45  et  seq.;  Loening,  op.  cit.,  139  et  seq.  The  cases  of 
von  Hellfeld  v.  Russia,  supra,  Mason  v.  Intercolonial  Railway  of  Can¬ 
ada  (1908),  197  Mass.,  349.  See  article  by  Nathan  Wolfman,  “Sover¬ 
eigns  as  Defendants,”  in  4  Amer.  Journ.  of  Int.  Law  (1910),  373-383, 
in  which  a  departure  from  the  general  rule  is  urged  in  favor  of  jurisdic¬ 
tion  over  property  engaged  in  private  or  commercial  undertakings. 


36 


JUDICIAL  SETTLEMENT 


creditors,  let  us  inquire  into  the  nature  of  the  transaction  by 
which  a  citizen  becomes  a  holder  of  a  share  in  the  public  debt 
of  a  foreign  nation. 

We  have  already  seen  that  the  emission  of  a  public  loan 
takes  place  by  legislative  act.  The  individual  abroad  may 
obtain  the  bond  either  through  a  direct  transaction  with  the 
government  or  through  a  banker  who  has  underwritten  the 
loan.  As  a  general  rule,  however,  the  bonds  are  purchased 
in  the  open  market  as  industrial  securities  would  be,  with¬ 
out  any  direct  relation  with  the  debtor  government.  Being 
payable  to  bearer,  they  pass  from  hand  to  hand,  from  na¬ 
tional  to  national,  by  mere  delivery. 

Again,  the  price  paid  takes  into  account  the  value  of  the 
security,  both  intrinsically  and  as  an  investment.  Thus  the 
solvability  of  the  government  bears  a  direct  relation  to  the 
price  of  its  bond.  Weak  and  unstable  governments  must 
sell  below  par  and  pay  high  rates  of  interest.  The  original 
capitalist  takes  advantage  of  the  necessities  of  the  borrowing 
state  and  exacts  discounts  and  interest  accordingly,  and  sub¬ 
sequent  dealers  in  the  bond  know  the  conditions  equally  well. 
The  legal  fact  that  the  emission  was  an  act  of  sovereignty, 
that  the  debt  may  be  repudiated  or  reduced  by  a  similar  act, 
that  the  usual  civil  remedies  are  barred,  and  that  the  state 
is  the  sole  judge  of  its  ability  to  pay,  are  known  to  all  parties 
to  the  transaction.  The  investor  therefore  buys  with  full  no¬ 
tice  and  assumption  of  the  risks,  and  has  weighed  the  proba¬ 
bilities  of  large  profits  against  the  danger  of  loss. 

It  is  for  these  reasons  that  it  seems  unfair,  both  to  the 
debtor  state  and  to  the  fellow  nationals  of  the  creditors 
(who  may  indeed  change  from  day  to  day),  that  the  gov¬ 
ernment  of  the  creditor  should  make  the  breach  of  such  a 
contractual  obligation  to  a  citizen  who  accidentally  holds  a 


OF  INTERNATIONAL  DISPUTES 


37 


foreign  public  bond  a  cause  for  armed  international  action 
involving  the  whole  nation  in  the  burden,  and  making  the 
government  in  effect  the  underwriter  and  guarantor  of  his 
investment  in  the  securities  of  a  foreign  government. 

This  is  the  principal  argument  of  the  Drago  Doctrine,  first 
advanced  in  the  celebrated  note  of  December  29,  1902,  from 
Dr.  Luis  Drago,  Minister  of  Foreign  Affairs  of  Argentine, 
to  the  Argentine  Minister  at  Washington,  and  by  him  sub¬ 
mitted  to  the  Department  of  State,  on  the  occasion  of  the 
joint  intervention  of  Great  Britain,  Italy  and  Germany 
against  Venezuela.  The  argument  led  up  to  the  recom¬ 
mendation  of  proposed  policy,  intended  to  be  a  corollary  to 
the  Monroe  Doctrine,  that  ‘‘the  public  debt  [of  an  American 
state]  cannot  occasion  armed  intervention,  nor  even  the 
actual  occupation  of  the  territory  of  American  nations  by  a 
European  power.”77 

We  may  note  that  Drago  protests  only  against  the  use  of 
armed  force  in  the  collection  of  public  debts  and  not  directly 
against  diplomatic  interposition.  Most  of  the  writers  who 


77  The  text  of  the  Drago  note  will  be  found  in  Foreign  Relations  1903, 
1-5.  Dr.  Drago  has  written  the  following  monographs  on  the  doctrine 
which  lias  been  named  after  him.  Cobro  coercitivo  de  deudas  publicas 
(Buenos  Ayres,  1906)  ;  Les  emprunts  d’Etat  et  leurs  rapports  avec  la 
politique  Internationale,  Revue  Generale  de  droit  international  public, 
vol.  14,  251,  translated  practically  in  full  in  his  article  “State  loans  in 
their  relation  to  international  policy,”  in  1  Amer.  Journ.  of  Int.  Law 
(1907),  692-726.  Among  the  best  literature  in  English  are  two  thought¬ 
ful  articles  by  George  Winfield  Scott,  “International  law  and  the  Drago 
doctrine”  in  North  American  Review,  Oct.,  1906,  602-610,  and  “Hague 
convention  restricting  the  use  of  force  to  recover  contract  claims”  in 
2  Amer.  Journ.  of  Int.  Law,  1908,  78-94;  an  article  by  Amos  S.  Hershey, 
The  Calvo  and  Drago  doctrines,  in  1  Amer.  Journ.  of  Int.  Law,  1907, 
26-45 ;  and  Chapter  VIII,  vol.  1,  pp.  386-422,  of  James  Brown  Scott’s 
The  Hague  Peace  conferences  of  1899  and  1907  (Baltimore,  1909).  One 
of  the  best  books  is  Moulin’s  La  doctrine  de  Drago  (Paris,  1908),  and  a 
useful  collection  of  documents  is  to  be  found  in  S.  Perez  Triana,  La 
doctrina  Drago  (Londres,  1908).  Further  references  to  foreign  litera¬ 
ture  may  be  found  in  Bonfils,  Manuel  (6th  ed.,  1912),  186,  n.  4.  See 
also  a  recent  work  by  Vivot,  A.  N.  La  doctrina  Drago,  Buenos  Aires, 
1911. 


38 


JUDICIAL  SETTLEMENT 


have  discussed  the  question  have  failed  to  note  this  distinc¬ 
tion,  possibly  because  a  denial  of  forcible  measures  deprives 
interposition  of  its  most  effective  sanction.  They  therefore 
consider  the  protest  against  the  sanction  as  directed  against 
the  whole  remedy,  though  even  without  the  potential  use  of 
force  it  still  has  some  room  for  application.  In  expressly 
stating  that  he  did  not  intend  to  make  his  “doctrine”  a  de¬ 
fense  “for  bad  faith,  disorder  and  deliberate  and  voluntary 
insolvency,”  Dr.  Drago  has,  we  believe,  set  the  proper 
bounds  to  his  principle,  although,  as  we  shall  point  out,  the 
creditor  state  is  still  (except  as  restrained  by  the  Porter 
proposition)  left  the  sole  judge  of  the  existence  of  these  lim¬ 
iting  conditions. 

Before  proceeding  further,  we  may  discuss  briefly  the 
opinions  of  publicists  and  the  practice  of  nations  in  the  mat¬ 
ter  of  intervention  to  collect  public  debts,  by  which  we  mean 
diplomatic  interposition  followed  by  force.  Westlake,  as 
we  have  seen  {supra,  p.  6),  has  properly  recognized  the  dis¬ 
tinction  in  substance  and  in  remedial  process  between  con¬ 
tracts  made  with  the  state  in  its  character  as  a  fiscus  or  busi- 
less  administrator  and  those  arising  out  of  subscription  to 
ar  transfer  of  a  public  bond.  He  regards  honest  inability  to 
pay  as  a  title  to  consideration,  and  unless  the  defaulting  gov¬ 
ernment  presumes  to  treat  its  internal  and  external  debts  on 
terms  of  inequality  unfavorable  to  the  latter,  he  thinks  “the 
assistance  of  their  state  ought  not  to  be  granted  to  the  bond¬ 
holders  of  public  loans.” 

Some  of  the  earlier  writers,  prominent  among  them 
Grotius  and  Vattel,  admitted  the  legitimacy  of  reprisals 
against  a  state  or  sovereign  who  refused  to  pay  a  lawful  debt 
{supra,  p.  9).  Inability  and  refusal  to  pay  are  not,  however, 
identical.  Phillimore  and  Hall,  supporting  the  views  of  the 


OF  INTERNATIONAL  DISPUTES 


British  government,  contend  that  a  debt  contracted  by  a  for¬ 
eign  government  toward  a  citizen  constitutes  an  obligation 
of  which  the  country  of  the  lender  has  a  right  to  require 
and  enforce  the  fulfillment.18  Yet  Phillimore  approves,  as 
he  says,  “the  proposition  of  Martens  .  .  .  that  the  for¬ 
eigner  can  only  claim  to  be  put  on  the  same  footing  as 
the  native  creditor  of  the  state.”79  Rivier,  one  of  the  fore¬ 
most  authorities,  has  in  this  respect  asserted  a  far-reaching 
right  of  intervention  under  circumstances  far  more  unrea¬ 
sonable  than  those  admitted  by  other  publicists.  Unless  we 
may  assume  that  the  words  we  have  underlined  presuppose 
fraud  and  bad  faith,  his  doctrine  will  hardly  find  general 
support,  though  it  must  be  admitted  that  the  weaker  states 
have  at  times  found  themselves  intervened  against  under  cir¬ 
cumstances  no  harsher  than  those  mentioned  by  Rivier 
“The  fortune  of  individuals,  subjects  of  the  state,  forms 
an  element  of  the  riches  and  prosperity  of  the  state  itself.  It 
has  an  interest  in  the  maintenance  and  increase  of  that  for¬ 
tune.  If  it  is  compromised  by  the  act  of  a  foreign  state 
zvhich  administers  its  finances  badly ,  which  betrays  the 
confidence  individuals  placed  in  it  when  they  subscribed  to 
loans  on  conditions  that  are  not  observed ,  and  zvhich  violates 
its  engagements  in  regard  to  them,  the  state  to  which  the  in¬ 
jured  individuals  belong  is  evidently  authorized  to  take  their 
interests  in  hand  in  any  manner  which  it  shall  deem  suitable ; 
it  may  proceed  either  by  diplomacy  or  by  reprisals  .  . 

Individuals  have  not,  as  a  general  rule,  the  right  to  require 
of  the  state  that  it  shall  thus  take  their  cause  in  hand.  The 
state  may  refuse  to  act  in  their  favor  for  reasons  of  which 
it  is  the  sole  judge;  but  if  it  acts,  it  only  exercises  its  right. 
It  may  see  to  it,  perchance,  according  to  the  circumstances, 
that  its  subjects  are  better  treated  than  those  of  other  states, 

78  Phillimore,  Int.  Law  (3rd  ed.),  vol.  2,  Ch.  Ill,  8  et  seq.;  Hall,  Int. 
Law  (6th  ed.),  275-276. 

79  Phillimore,  op.  cit.,  vol.  2.  14. 


40 


JUDICIAL  SETTLEMENT 


or  than  those  of  the  insolvent  state.  This  is,  from  the  legal 
point  of  view,  a  matter  of  absolute  indifference/’80 

G.  F.  de  Martens  sanctions  intervention  in  case  of  “vio¬ 
lent  financial  operations”  of  the  debtor  state  depriving  cred¬ 
itors  of  their  loans,  but  he  adds  that  creditors  cannot  demand 
better  treatment  than  nationals.  Although  cited  by  Philli- 
more  as  an  advocate  of  intervention,  opponents  may  also  find 
support  in  his  ambiguous  doctrines.81 

The  majority  of  writers  consider  armed  intervention  for 
the  mere  non-payment  of  public  debts  an  unjustifiable  pro¬ 
cedure,  their  reasons  being  similar  to  those  advanced  by  Dr. 
Drago,  to  wit :  That  hazardous  loans  should  be  discouraged ; 
that  those  making  them  have  full  notice  of  the  risks;  that 
foreigners  cannot  expect  to  be  preferred  to  native  creditors ; 
that  force  is  never  resorted  to  except  against  weak  states 
and  is  often  a  pretext  for  aggression  or  conquest;  and, 
finally,  that  the  loss  of  credit  and  standing  incurred  by  the 
state  is  an  ample  and  effective  penalty  for  the  failure  to  ful¬ 
fill  its  obligations.82  The  objections  of  writers,  however, 


80  Rivier,  Alphonse.  Principes  du  droit  des  gens  (Paris,  1896), 
vol.  1,  272. 

81  G.  F.  de  Martens,  Precis  du  droit  des  gens  (Paris,  1864),  vol.  1, 
298,  §  110.  See  also  Phillimore,  op.  cit.,  14,  and  Pradier-Fodere,  Traite, 
vol.  1,  §  405,  p.  623,  note. 

82  These  authorities  are  enumerated  and  citations  to  their  works  given 
in  the  second  part  of  footnote  34  of  Hershey’s  article  in  1  Amer.  Journ. 
of  Int.  Law  (1907),  37;  in  the  work  of  Wuarin,  op.  cit.,  155-159,  and  in 
the  address  of  Gen.  Horace  Porter  before  the  Second  Hague  Confer¬ 
ence  on  July  16,  1907,  in  presenting  the  American  proposition  for  the 
limitation  of  force  in  the  collection  of  contractual  debts.  La  deuxieme 
Conference  international  de  la  Paix,  vol.  II,  229-233.  Also  printed  in 
English  (Hague,  1907).  The  principal  publicists  who  oppose  what  we 
may  call  financial  intervention  are  F.  de  Martens,  Westlake,  Holland, 
Bonfils,  Calvo,  Pradier-Fodere,  Rolin-Jacquemyns,  Despagnet,  von  Bar, 
Liszt,  Geffcken,  Kebedgy,  Nys,  Merignhac,  Feraud-Giraud,  Weiss, 
Olivecrona  and  Floecker.  Gen.  Porter  also  cited  Rivier,  but  this  must 
have  been  an  oversight.  See  also  Collas,  Der  Staatsbankerott  und  seine 
Abwicklung  (Stuttgart,  1904),  51,  and  Freund,  Rechtsverhaltnisse,  etc., 
271. 


OF  INTERNATIONAL  DISPUTES 


41 


are  directed  not  to  diplomatic  interposition,  but  rather  to  an 
excess  of  interposition  in  the  use  of  armed  force  to  collect 
unpaid  public  loans. 

The  preponderance  of  opinion  is,  however,  that  under  cer¬ 
tain  circumstances  intervention  to  secure  the  payment  of 
public  loans  is  legitimate.  Authorities  differ  merely  as  to 
the  nature  of  the  circumstances.  In  general  we  may  say  that 
intervention  is  not  warranted  in  the  case  of  an  honest  in¬ 
ability  of  the  state  to  pay  its  debts,  but  only  when,  the  means 
being  at  hand,  the  debtor  state  wilfully  refuses  to  pay;  or  fur¬ 
ther,  when  foreign  creditors  are  illegally  treated,  especially 
if  they  are  discriminated  against  in  favor  of  national  cred¬ 
itors,  or  if  certain  categories  of  creditors  are  preferred  to 
others;  or  when  special  funds  assigned  as  security  to  the 
payment  of  certain  debts  are  diverted  or  suppressed ; — in 
short,  when  bad  faith  may  be  considered  the  moving  cause 
of  the  non-payment.  In  the  present  condition  of  interna¬ 
tional  law,  in  which  states,  large  and  small,  have  no  com¬ 
mon  superior  to  control  or  check  them,  each  state  has  the 
legal  right  of  deciding  for  itself  whether  the  conditions  war¬ 
ranting  intervention  exist.  In  the  use  of  this  right ,  the 
power  of  enforcing  its  demands  has  often  been  a  factor 
more  controlling  than  the  mere  legitimacy  or  fairness  of 
its  action** 

88  The  decision  of  the  Hague  Permanent  Court  of  Arbitration  in  the 
Preferential  Claims  case  of  Germany,  Great  Britain  and  Italy  against 
Venezuela  has  been  considered  an  approval  of  the  use  of  force  in  the 
collection  of  claims  based  on  contract  or  public  debt.  While  it  is  true 
that  the  use  of  force  appears  to  have  been  sanctioned  by  the  tribunal  by 
the  allowance  of  preferential  treatment  of  the  three  blockading  powers, 
it  is  certain  that  only  a  small  part  of  the  claims  pressed  arose  out  of  con¬ 
tractual  debts.  The  primary  reason  of  the  blockade  was  the  stubborn 
reiteration  by  Venezuela  of  the  exclusive  jurisdiction  of  its  national 
courts  and  the  absolute  refusal  to  arbitrate.  Castro’s  arrogance  ex¬ 
hausted  the  patience  and  temper  of  the  powers.  See  article  by  Basde- 
vant,  Jules:  L’action  coercitive  Anglo-Germano-Italien.ne  contre  le 
Venezuela  (1902-1903),  Rev.  gen.  de  droit  int.  pub.,  vol.  11,  363-458. 


42 


JUDICIAL  SETTLEMENT 


There  is,  in  fact,  no  definite  rule  as  to  diplomatic  interven¬ 
tion  in  the  matter  of  unpaid  public  loans,  except  in  so  far  as 
the  convention  of  the  Second  Hague  Conference  for  the  lim¬ 
itation  of  the  use  of  force  in  the  collection  of  contractual 
debts  will  operate  as  a  check  by  requiring  under  certain 
:onditions  a  preliminary  resort  to  arbitration. 

The  European  powers  have  on  several  occasions  inter¬ 
vened  to  secure  the  payment  of  public  loans  due  their  sub¬ 
jects.  Their  action  has  taken  various  forms.  Sometimes 
it  has  been  merely  the  use  of  good  offices  and  an  approval 
of  arrangements  for  financial  control  made  by  national  bank¬ 
ers  or  associations  of  bondholders  with  the  debtor  state,  as 
in  the  case  of  Turkey  (1881)  and  Servia  (1904);  an  as¬ 
sumption  of  limited  governmental  control,  as  in  the  case  of 
the  United  States  in  the  Dominican  Republic  (1907);  or 
joint  intervention  of  several  powers  assuming  financial  con¬ 
trol  as  in  the  case  of  Tunis  (1868),  of  Greece84  (1897)  and 
of  Egypt  (1880). 85  This  is  intervention  in  the  true  sense, 
in  that  it  involves  an  administrative  control  over  a  certain 


Hershey,  Amos  S. :  The  Venezuelan  affair  in  the  light  of  international 
law,  American  Law  Register,  vol.  51,  249-267.  The  Hague  decision 
is  criticised  by  Andre  Mallarme  in  an  article  L’arbitrage  Ven¬ 
ezuelan  in  Revue  generale,  vol.  13,  423-500.  For  the  correspondence 
see  Asuntos  Internacionales,  two  volumes  of  the  Yellow  Book  of  Vene¬ 
zuela  published  in  1903  and  extracts  printed  in  the  Appendix  to  Ral¬ 
ston’s  Report  of  the  Venezuelan  Arbitrations. 

84  Kebedgy,  Michel  S.  Les  difficultes  financieres  de  la  Grece  et  l’inter- 
vention  des  etats  etrangers.  Revue  generale,  vol.  _  1,  261-271.  Imbert, 
Henri  Marc,  Les  emprunts  d’etats  etrangers  (Paris,  1905)  gives  an  ac¬ 
count  of  the  various  cases  of  intervention  in  Turkey,  Egypt,  Portugal, 
Greece,  Tunis  (pp.  60-99).  Kebedgy,  M.  S.  De  la  protection  des  cre- 
anciers  d’un  Etat  etranger,  Clunet,  vol.  21,  59-72,  504-519.  See  also 
Wuarin,  Freund  and  Politis,  op.  cit.  Meili,  Fr.  Der  Staatsbankerott  und 
die  moderne  Rechtswissenschaft  (Berlin,  1895).  Wuarin,  article  in 
Clunet,  Vol.  29,  25  et  seq.,  420-431. 

85  Kauffmann,  Wilhelm.  Das  internationale  Recht  der  egyptischen 
Staatschuld  (Berlin,  1891).  See  also  article  by  same  author  in  Revue 
de  droit  international,  vol.  22,  556-586;  vol.  23,  48-75,  144-175,  266-316. 
A  bibliography  on  the  Egyptian  debt  will  be  found  in  Clunet,  vol.  30, 
681-683. 


OF  INTERNATIONAL  DISPUTES 


43 


portion  ©f  national  resources  and  revenues.  It  seems  to  be 
more  proper  on  the  part  of  a  state  or  states  guaranteeing  the 
debt  of  some  weak  state  placed  under  their  guardianship. 
Both  this  form  of  action  and  the  collection  of  loans  by  force 
of  arms  without  complete  intervention,  as  the  joint  oper¬ 
ations  against  Mexico  in  1861  and  against  Venezuela  in 
1902,  have  invariably  been  carried  out  against  weak  states. 
When  Spain,  Italy,  Austria  and  Hungary  at  different  times 
suspended  or  reduced  their  public  obligations  there  was  no 
intervention  on  the  part  of  the  powers  whose  subjects  had 
shares  in  the  unpaid  or  underpaid  loans.  This  is  at  least 
cumulative  evidence  in  establishing  that  intervention  or  the 
use  of  arms  to  collect  public  loans  is  a  question  of  power 
and  politics  rather  than  a  rule  of  law. 

Notwithstanding  Great  Britain’s  participation  in  the  oper¬ 
ations  against  Mexico  in  1861,  against  Egypt  in  1880  and 
against  Venezuela  in  1902,  her  statesmen  have  always  as¬ 
serted  it  to  be  England’s  policy  not  to  interpose  diplomati¬ 
cally  in  behalf  of  British  holders  of  bonds  of  foreign  govern 
ments,  though  reserving  their  liberty  of  action.  The  Brit¬ 
ish  view  was  expressed  in  its  now  accepted  form  in  the  cele¬ 
brated  circular  sent  by  Lord  Palmerston  in  1848  to  the  Brit¬ 
ish  representatives  in  foreign  states.  He  then  declared : 

“It  is  therefore  simply  a  question  of  discretion  with  the 
British  government  whether  this  matter  [the  non-payment1 
of  public  loans]  should  or  should  not  be  taken  up  by  diplo¬ 
matic  negotiation,  and  the  decision  of  that  question  of  dis¬ 
cretion  turns  entirely  upon  British  and  domestic  consider¬ 
ations.” 

Referring  to  the  economic  disapproval  of  British  invest¬ 
ments  in  foreign  loans,  as  against  British  enterprises,  he 
added  that  the  British  government  has 


44 


JUDICIAL  SETTLEMENT 


“hitherto  thought  it  the  best  policy  to  abstain  from  taking  up 
as  international  questions  the  complaints  made  by  British 
subjects  against  foreign  governments  which  have  failed  to 
make  good  their  engagements  in  regard  to  such  pecuniary 
transactions  .  .  .” 

“But,  nevertheless,  it  might  happen  that  the  loss  occa¬ 
sioned  to  British  subjects  by  the  non-payment  of  interest 
upon  loans  made  by  them  to  foreign  governments  might  be¬ 
come  so  great  that  it  would  be  too  high  a  price  for  the  na¬ 
tion  to  pay  for  such  a  warning  as  to  the  future,  and  in  such 
a  state  of  things  it  might  become  the  duty  of  the  British 
government  to  make  these  matters  the  subject  of  diplomatic 
negotiations.”86 

Palmerston’s  note  has  occasionally  been  misinterpreted  by 
writers  who  use  his  note  in  support  of  an  argument  for  non¬ 
intervention.  When  he  stated  that  interference  was  “for  the 
British  government  entirely  a  question  of  discretion,  and  by 
no  means  a  question  of  international  right,”  he  did  not  in¬ 
tend  to  cast  any  doubt  on  the  right  of  Great  Britain  to  inter¬ 
fere  (as  some  writers  have  quoted  him),  but  he  meant  that 
there  was  no  question  about  the  right  to  interfere.  This  is 
clearly  shown  by  the  following  sentence  of  the  note  .87 

Subsequent  secretaries  for  foreign  affairs,  emphasizing  the 
speculative  character  of  the  transaction  of  subscription  to  a 
foreign  loan,  have  declined  to  do  more  than  exercise  their 
good  offices  in  behalf  of  unpaid  bondholders.  Great  Brit- 


86  Palmerston’s  circular  is  quoted  in  full  by  Phillimore,  op.  cit.,  II, 
9-11,  and  by  Hall,  276-277.  Other  secretaries  for  foreign  affairs  of 
Great  Britain  have  expressed,  in  language  even  more  unreserved  than 
that  of  Palmerston,  the  policy  of  non-interference.  See,  for  example, 
Canning  and  Aberdeen  (St.  Pap.,  28,  pp.  961,  967,  969),  Russell  (St. 
Pap.  52,  pp.  237-239),  Derby,  Granville  (quoted  by  Phillimore,  op.  cit., 
pp.  12-13),  and  Salisbury  (cited  by  Hall,  note  p.  277).  Balfour,  when 
Prime  Minister  in  1902,  supported  this  view ;  see  Scott’s  Hague  Peace 
Conferences,  vol.  1,  402. 

87  See,  for  example,  Gen.  Porter’s  address  of  July  16,  1907,  printed 
separately  and  quoted  in  Scott’s  Hague  Peace  Conferences,  vol.  1,  402. 


OF  INTERNATIONAL  DISPUTES 


45 


ain’s  practice  of  non-interference  is  entirely  a  matter  of 
policy  and  is  not  to  be  construed  as  the  recognition  of  an 
international  legal  principle.870 

The  practice  of  non-interference  of  the  United  States  on 
the  other  hand  has  been  not  only  a  matter  of  policy,  but  the 
carrying  out  of  a  fundamental  principle  that  the  diplomatic 
interposition  of  the  United  States  cannot  be  invoked  (within 
the  recognized  limitations)  in  behalf  of  contractual  claims.83 
If  certain  revenue  or  security  has  been  set  aside  for  the  re¬ 
payment  of  a  loan,  it  seems  probable  that  the  United  States 
would,  following  the  practice  of  other  nations,  interpose  dip¬ 
lomatically  to  prevent  any  diversion  of  the  security  or  the 
pledged  revenue.89  Attorney-General  Cushing  in  the  course 
of  an  elaborate  opinion  on  the  Texas  bonds  question  de¬ 
clared  that 

“A  public  creditor,  like  a  private  creditor,  has  a  general 
right  to  receive  payment  out  of  the  property,  income,  or 
means  of  his  debtor.  A  special  pledge  of  this  or  that  source 
of  revenue,  of  this  or  that  direct  tax,  when  made  by  a  gov¬ 
ernment,  renders  such  source  of  revenue,  like  a  mortgage  or 
deed  of  trust  given  by  a  private  individual  to  his  creditor,  a 
specific  lien,  a  fixed  incumbrance,  which  the  government 
ought  not,  in  justice  to  the  creditor,  to  abolish,  lessen,  or 
alienate  until  the  debt  has  been  satisfied.”90 

In  the  case  of  certain  bonds  issued  by  Hayti  to  American 
citizens  for  work  and  materials  furnished,  Secretary  of  State 
Sherman  protested  against  a  proposed  law  of  Hayti  having 

87a  The  recent  threat  of  Great  Britain  to  dispatch  a  warship  to  Guate¬ 
mala  to  collect  the  unpaid  interest  and  capital  on  bonds  held  by  British 
subjects  may  be  charged  to  the  action  of  Guatemala  in  diverting  the 
security  of  the  loan,  an  export  tax  on  coffee,  to  other  purposes. 

88  Citations  noted  in  Moore  and  Wharton,  supra,  p.  463. 

89  Cases  cited,  supra.  See  also  opinion  of  Little,  commissioner,  in 
Aspinwall  (U.  S.)  v.  Venezuela,  Dec.  5,  1885,  Moore’s  Arb.,  3641-3642, 

90  Opinion  of  Sept.  26,  1853,  6  Opin.  Atty.-Gen.,  130,  143. 


46 


JUDICIAL  SETTLEMENT 


in  view  the  conversion  of  the  bonds  at  a  rate  greatly  depre¬ 
ciatory  of  their  value.91  There  would  indeed  seem  to  be 
some  difference  between  bonds  purchased  in  the  open  mar¬ 
ket  as  an  investment  and  bonds  received  in  payment  for 
services  and  goods,  in  the  hands  of  the  original  parties. 

Where  the  loan  has  been  liquidated  and  a  new  agreement 
for  payment  made,  the  origin  of  the  debt  seems  to  have 
been  no  deterrent  against  its  enforcement.  So  in  Mexico, 
in  1 86 1,  Lord  John  Russell  withheld  recognition  of  the 
Mexican  government  until  Mexico  had  agreed  to  carry  out 
an  arrangement  made  with  British  bondholders.92 

Both  the  United  States  and  Great  Britain  have  authorized 
their  representatives  abroad  to  receive  payment  for  their  citi¬ 
zen  bondholders,  as  a  matter  of  convenience  both  to  the 
debtor  government  and  to  the  citizen,93  and  where  the  bonds 
of  one  foreign  government  have  been  wholly  or  largely  held 
by  the  citizens  of  another,  the  United  States  has  on  one 
occasion  at  least  sanctioned  the  endeavor  of  the  government 
of  the  creditors  to  effect  by  diplomatic  negotiation  an  adjust¬ 
ment  of  their  claim.94 

Dr.  Drago,  in  advancing  his  doctrine  as  a  corollary  to  the 
Monroe  Doctrine,  had  some  reason  to  expect  the  approval 
of  the  United  States,  not  only  because  of  its  interest  in  the 
maintenance  of  the  Monroe  Doctrine,  but  because  of  its  tra¬ 
ditional  attitude  in  the  matter  of  contract  claims.  Dr.  Drago 
quoted  from  Monroe’s  message  that  the  United  States 

91  Mr.  Sherman,  Secy  of  State,  to  Mr.  Powell  (Oct.  26,  1897), 
Moore’s  Dig,  VI,  729. 

92  Lord  J.  Russell  to  Sir  C.  Wyke  (Mar.  30,  1861),  St.  Pap,  vol.  52, 
237,  239. 

93  Mr.  Frelinghuysen,  Sec’y  of  State,  to  Mr.  Wright  (Jan.  17,  1884), 
Moore’s  Dig,  VI,  713;  Phillimore,  op.  cit.  vol.  2,  13. 

94  Mr.  Frelinghuysen,  Sec’y  of  State,  to  Mr.  Wright  (Jan.  17,  1884), 
Moore’s  Dig,  VI,  713.  He  stated,  however,  that  the  occasions  on  which 
this  had  been  done  were  not  common  enough  to  form  a  rule  of  action. 


OF  INTERNATIONAL  DISPUTES 


“could  not  view  any  interposition  for  the  purpose  of  op¬ 
pressing  [the  countries  of  the  American  continent],  or  con¬ 
trolling  in  any  other  manner  their  destiny,  by  any  European 
power,  in  any  other  light  than  as  the  manifestation  of  an  un¬ 
friendly  spirit  toward  the  United  States.”95 

In  Secretary  of  State  Hay’s  reply  to  the  Drago  note  (one  of 
“cordial  evasion,”  as  Dr.  Drago  himself  has  expressed  it), 
Mr.  Hay  quoted  from  President  Roosevelt’s  message  of 
1901  to  the  effect  that 

“we  do  not  guarantee  any  state  against  punishment  if  it  mis¬ 
conducts  itself,  provided  that  punishment  does  not  take  the 
form  of  the  acquisition  of  territory  by  any  non-American 
power,”96 

but  added  an  unequivocal  approval  of  arbitration  of  claims 
growing  out  of  alleged  wrongs  to  individuals. 

Both  Mr.  Root,  as  Secretary  of  State,  and  President  Roose¬ 
velt,  having  in  mind  the  difficulties  of  Venezuela  in  1903 
and  those  of  the  Dominican  Republic  in  1894  and  1904  in 
endeavoring  to  ward  off  foreign  intervention,  were  anxious 
to  have  the  question  of  the  use  of  force  in  the  collection  of 
contractual  claims  settled  by  the  agreement  of  states.  Mr. 
Root  therefore  on  June  18,  1906,  instructed  the  delegates 
of  the  United  States  to  the  Third  American  Conference 
of  American  States  at  Rio  Janeiro  as  follows: 

“It  has  long  been  the  established  policy  of  the  United 
States  not  to  use  its  armed  forces  for  the  collection  of  or¬ 
dinary  contract  debts  due  to  its  citizens  by  other  govern¬ 
ments.” 


95  President  Monroe’s  Annual  Message  (Dec.  2,  1823),  Amer.  St. 
Pap.,  For.  Rel.,  V,  246,  250,  quoted  in  Moore’s  Dig.,  VI,  401,  402.  Rich¬ 
ardson’s  Messages,  vol.  2,  209  ct  seq. 

96  Mr.  Hay,  Sec’y  of  State,  to  Sehor  Garcia  Merou  (Feb.  17,  1903), 
For.  Rel.,  1903,  5-6. 


48 


JUDICIAL  SETTLEMENT 


After  deprecating  its  injurious  effect  upon  the  welfare  of 
weak  and  disordered  states,  whose  development  ought  to  be 
encouraged  in  the  interests  of  civilization,  he  added : 

“It  is  doubtless  true  that  the  non-payment  of  public  debts 
may  be  accompanied  by  such  circumstances  of  fraud  and 
wrong-doing  or  violation  of  treaties  as  to  justify  the  use  of 
force.  This  government  would  be  glad  to  see  an  interna¬ 
tional  consideration  of  the  subject  which  shall  discriminate 
between  such  cases  and  the  simple  non-performance  of  a 
contract  with  a  private  person,  and  a  resolution  in  favor  of 
reliance  upon  peaceful  means  in  cases  of  the  latter  class. ”01 

He  recommended,  however,  that  as  most  of  the  American 
states  were  still  debtors  and  would,  by  such  a  resolution,  re¬ 
solve  how  their  creditors  should  act,  it  would  be  more  fitting 
that  they  should  request  the  Hague  Conference  to  consider 
the  subject,  where  both  creditors  and  debtors  would  be  as¬ 
sembled. 

The  Rio  Conference  made  such  a  request,  and  the  United 
States  delegation  at  The  Hague,  on  instructions  from  Mr. 
Root,  as  Secretary  of  State,  brought  forward  a  proposition 
to  the  effect  that  the  use  of  force  for  the  collection  of  con¬ 
tract  debts  is  not  permissible  until  after  the  justice  and 
amount  of  the  debt,  as  well  as  the  time  and  manner  of  pay¬ 
ment,  shall  have  been  determined  by  arbitration.88 

Gen.  Horace  Porter  took  charge  of  this  proposition,  and 
made  the  principal  address  in  its  support.  After  several 
amendments  to  his  original  draft,  the  conference  by  a  vote 

97  Senate  Doc.  365,  59th  Cong-.,  2nd  Sess.,  41-42. 

98  In  the  Russian  program  of  the  First  Peace  Conference  of  1899  re¬ 
garding  international  arbitration  a  clause  had  been  included  providing 
that  arbitration  shall  be  obligatory  “in  the  case  of  differences  or  con¬ 
flicts  regarding  pecuniary  damages  suffered  by  a  state  or  its  citizens 
in  consequence  of  illegal  or  negligent  action  on  the  part  of  any  state  or 
the  citizens  of  the  latter.”  This  proposition  for  the  arbitration  of  pecu¬ 
niary  claims  was  for  various  reasons  dropped. 


OF  INTERNATIONAL  DISPUTES 


49 


of  39  in  favor  and  5  abstentions  (Belgium,  Roumania,  Swe¬ 
den,  Switzerland  and  Venezuela)  adopted  the  following 
convention — a  few  states  making  special  reservations : 

“The  Contracting  Powers  agree  not  to  have  recourse  to 
armed  force  for  the  recovery  of  contract  debts  claimed  from 
the  government  of  one  country  by  the  government  of  an¬ 
other  country  as  being  due  to  its  nationals. 

“This  undertaking  is,  however,  not  applicable  when  the 
debtor  state  refuses  or  neglects  to  reply  to  an  offer  of  arbi¬ 
tration,  or,  after  accepting  the  offer,  prevents  any  compromis 
from  being  agreed  on,  or,  after  the  arbitration,  fails  to  sub¬ 
mit  to  the  award.” 

While  not  rejecting  completely  the  possibility  of  forcibly 
collecting  contract  debts,  the  convention  represents  a  con¬ 
siderable  step  in  advance,  inasmuch  as  it  makes  the  use  of 
force  conditional  upon  (1)  a  refusal  to  arbitrate;  (2)  mak¬ 
ing  a  formulation  of  an  agreement  impossible  after  arbitra¬ 
tion  is  accepted;  (3)  failure  to  carry  out  the  award.  These 
are  more  definite  and  more  appropriate  limitations  than  the 
vague  terms  “bad  faith,”  “deliberate  and  voluntary  in¬ 
solvency,”  etc.,  which  we  may  infer  even  the  opponents  of 
intervention  and  Dr.  Drago  himself  would  consider  as  justi¬ 
fiable  causes  of  intervention." 

A  few  countries  either  declined  to  subscribe  to  the  con¬ 
vention  or  in  adhering  registered  important  reservations. 
Switzerland  and  Venezuela  declined  to  sign  the  convention 
(although  the  latter  was  very  willing  to  accept  the  renuncia¬ 
tion  of  force)  on  the  ground  that  it  ousted  the  national 

99  A  good  account  of  the  preliminary  instructions  and  principal 
speeches  and  proposals  in  connection  with  this  convention  for  the  limita¬ 
tion  of  the  employment  of  force,  with  appropriate  quotations,  may  be 
found  in  J.  B.  Scott’s  Hague  Peace  Conferences,  vol.  1,  Chap.  VIII, 
386-422.  See  also  article  by  G.  W.  Scott,  supra,  in  2  Amer.  Journ.  of 
Int.  Law  (1908),  78-94.  The  convention  in  full  is  printed  in  Scott’s 
Hague  Peace  Conferences,  vol.  2  (Documents),  357-361. 


50 


JUDICIAL  SETTLEMENT 


courts  of  jurisdiction.  One  can  understand  Switzerland’s 
unwillingness  to  be  bound  to  arbitrate  a  question  in  which 
its  courts,  internationally  recognized  as  impartial,  have  juris¬ 
diction.100  Venezuela’s  protest,  which  took  the  following 
form — 

“recourse  to  arbitration  should  be  permitted  only  in  the  case 
of  denial  of  justice  after  the  judicial  remedies  of  the  debtor 
state  had  been  exhausted” — 

is  to  be  regarded  as  traditional.  Unless  its  judicial  organ¬ 
ization  is  acknowledged  as  more  independent  now  than  in 
1902,  it  is  unlikely  that  mere  protests  will  be  of  any  more 
avail  than  they  were  in  1902.  Seven  other  Latin-American 
republics,  by  way  of  reservation,  joined  in  the  objection  of 
Venezuela. 

The  principal  reservation  was  made  by  Dr.  Drago  himself, 
on  the  part  of  Argentine.  After  declaring  that  ordinary 
contracts  should  be  arbitrable  only  in  case  of  denial  of  justice 
after  the  exhaustion  of  local  remedies,  he  added : 

“Public  loans  with  bond  issues  constituting  the  national 
debt  cannot  in  any  case  give  rise  to  military  aggression  nor 
to  the  occupation  of  the  soil  of  American  states.” 

In  this  reservation  Argentine  was  joined  by  Colombia, 
Ecuador,  Guatemala,  Nicaragua,  Paraguay,  Peru  and  Uru¬ 
guay.101 


100  In  theory  at  least  the  strong  and  well-organized  states  have  re¬ 
nounced  an  inherent  right.  Dr.  Heinrich  Pohl  in  the  Zeitschrift  fur 
Politik  (vol.  4,  134,  138)  criticises  Germany  for  having  ratified  the 
Porter  Proposition  (Reichsgesetzblatt,  1910,  59-81),  for  he  states  that 
Germany  may  sometimes  be  a  defendant  state  and  will  be  bound  by  the 
agreement  to  arbitrate,  thus  ousting  its  courts  of  jurisdiction. 

101  See  table  of  reservations  in  J.  B.  Scott’s  Hague  Peace  Conferences, 
vol.  2,  532-534,  and  article  by  G.  W.  Scott,  supra ,  p.  89.  See  also 
Zeitschr.  fur  Volkerr.  u  Bundesstaatsrecht,  vol.  3,  72,  73. 


OF  INTERNATIONAL  DISPUTES 


51 

Another  reservation  by  Peru,  in  which  Uruguay  joined, 
sought  to  protect  the  so-called  Calvo  clause  from  possible 
infringement.  The  reservation  reads : 

“That  the  principles  adopted  in  this  proposition  cannot  be 
applied  to  claims  or  differences  arising  from  contracts  be¬ 
tween  the  government  of  one  country  and  foreign  subjects, 
when  it  has  been  expressly  stipulated  that  the  claims  or  dif¬ 
ferences  must  be  submitted  to  the  judges  and  tribunals  of  the 
contracting  country.” 

The  general  futility  of  this  clause  in  so  far  as  it  seeks  to 
attain  the  exclusive  jurisdiction  of  local  courts  and  the  avoid¬ 
ance  of  diplomatic  interposition,  has  been  demonstrated  by 
international  practice. 

It  will  be  seen  that  this  Hague  convention  for  the  limita¬ 
tion  of  the  use  of  force  in  the  collection  of  contractual  debts, 
popularly  known  as  the  Porter  proposition,  is  at  once  nar¬ 
rower  and  wider  in  scope  than  the  Drago  doctrine.  It  is 
narrower  inasmuch  as  it  recognizes  the  ultimate  legality  of 
the  use  of  force.  As  a  definite  check  upon  the  use  of  force  in 
first  instance,  and  an  important  extension  of  the  principle  of 
international  arbitration,  it  is  to  be  welcomed,  for  pacific 
blockades,  threats  of  hostilities,  and  rumors  of  warlike  prep¬ 
arations,  have  a  most  disturbing  effect  on  international  com¬ 
merce,  and  as  General  Porter  showed,  the  disposition  of  neu¬ 
tral  states  to  refuse  to  recognize  pacific  blockade  leads  to  the 
more  effective  blockade  of  actual  war,  and  as  Mr.  Roosevelt 
on  a  number  of  occasions  has  stated,  the  seizure  of  custom 
houses  easily  leads  to  a  more  permanent  occupation  of  terri¬ 
tory. 

Moreover,  the  interruption  of  the  commerce  of  the  debtor 
nation  diminishes  its  means  and  opportunities  to  pay  the 
very  debts  for  which  the  hostilities  are  undertaken  and  acts 
unfairly  toward  creditors  of  other  nations.  Many  of  these 
difficulties  will  now  be  avoided. 


52 


JUDICIAL  SETTLEMENT 


The  Porter  proposition  is  under  in  scope  than  the  Drago 
doctrine  in  that  its  provisions  apply  to  all  contractual  debts, 
whereas  Dr.  Drago  confined  his  policy  to  claims  arising  out 
of  the  non-payment  of  public  loans.  Nevertheless,  doubt 
has  been  raised,  both  in  the  sub-committee  of  the  conference 
and  since  then,  as  to  the  meaning  of  “contractual  debts.”102 

Without  entering  into  the  various  interpretations  to  which 
the  term  is  subject,  it  seems  clear  that  it  does  include  public 
loans. 

There  is  a  class  of  cases,  however,  on  the  “contractual” 
nature  of  which  there  may  be  some  doubt.  When  a  contract 
has  been  concluded  between  a  government  and  an  individual 
for  the  carrying  on  of  some  public  work,  it  has  happened 
that  a  subsequent  act  of  the  legislature,  acting  not  as  a  busi¬ 
ness  fiscus  but  as  a  sovereign,  diminishes  the  contractor’s 
rights  under  the  contract.  National  courts,  as,  for  example, 
the  United  States  Court  of  Claims,  have  held  that  the  two 
functions  which  the  government  possesses  as  a  fiscus  and  as 
a  sovereign  are  distinct,  and  that  the  United  States  when 
sued  in  the  one  character  cannot  be  made  liable  for  acts 
done  in  the  other : 

“Whatever  acts  the  government  may  do,  be  they  legisla¬ 
tive  or  executive,  so  long  as  they  be  public  and  general,  can¬ 
not  be  deemed  specially  to  alter,  modify,  obstruct  or  violate 
the  particular  contracts  into  which  it  enters  with  private 
persons.”103 

The  question  arises  whether  these  distinctions  of  national 
law  which  exclude  the  case  mentioned  from  the  category  of 

102  A  full  discussion  of  these  doubts  and  possible  interpretations  is 
contained  in  Moulin,  op.  cit.,  308-320.  See  also  article  by  G.  W.  Scott, 
supra,  90-93. 

103  Deming  v.  United  States,  1  Ct.  Cl.  (1865),  190-191;  Jones  and 
Brown  v.  United  States,  1  Ct.  Cl.  (1865),  384-399;  Wilson  v.  United 
States,  11  Ct.  Cl.  (1875),  513-522.  French  courts  have  held  the  govern¬ 
ment  liable  for  breach  of  contract  by  an  act  of  legislation. 


OF  INTERNATIONAL  DISPUTES 


53 


contractual  debts  will  be  maintained  by  the  international 
forum  in  the  interpretation  of  the  term  “contractual  debts.,, 
We  have  seen  that  foreign  offices  in  dealing  with  the  Latin- 
American  Republics  have  considered  it  as  a  violation  of  the 
contract,  and  an  arbitrary  measure,  thus  to  reduce  the  con¬ 
tractor’s  rights  by  a  subsequent  legislative  act.  It  seems 
reasonable  to  assume  that  this  will  be  the  interpretation  of 
the  term  “contractual  debt”  by  an  international  court. 

Bond  cases  have  come  before  international  tribunals  on 
several  occasions.  Very  little  light  is  thrown  upon  the  sub¬ 
ject  by  the  results  of  these  arbitrations,  except  as  by  their 
dicta  the  commissions  express  the  opinion  that  governments 
have  the  right  to  press  the  claims  of  bondholders  of  a  for¬ 
eign  debt,  though  they  generally  admit  that  in  practice  such 
claims  are  not  diplomatically  presented.  As  a  general  rule, 
however,  jurisdiction  has  been  declined — usually  for  the  rea¬ 
son  that  governments  are  not  in  the  habit  of  presenting  such 
claims  diplomatically  and  because  of  the  unwillingness  of 
commissions  to  assume  that  they  were  intended  to  exercise 
jurisdiction  in  the  absence  of  express  words  in  the  proto¬ 
col.104  It  has  been  so  held  even  where  the  protocol  provided 
for  the  settlement  of  “all  claims.”105  This  last  decision,  ren¬ 
dered  by  Sir  Frederick  Bruce,  Umpire,  was  severely  criti¬ 
cised  by  Mr.  Commissioner  Little  in  the  Aspinwall  case  be¬ 
fore  the  United  States- Venezuelan  commission  of  December 
5,  1885.  He  held,  with  Mr.  Findlay  (Andrade  dissenting), 
that  the  inclusive  term  “all  claims”  embraced  bond  claims. 
This  case  constitutes  one  important  exception,  prior  to  the 

104  Overdue  Mexican  coupons,  Du  Pont  de  Nemours  (U.  S.)  v.  Mex¬ 
ico,  July  4,  1868,  Moore’s  Arb.,  3616.  Opinion  by  Wadsworth.  Zama- 
cona  concurred.  See  dictum  of  Thornton,  Umpire,  in  Widman  (U.  S.) 
v.  Mexico,  July  4,  1868,  Moore’s  Arb.,  3467. 

105  Colombian  Bond  cases,  Riggs,  Oliver,  Fisher  (U.  S.)  v.  Colombia 
(February  10,  1864),  Moore’s  Arb.,  3612-3616. 


54 


JUDICIAL  SETTLEMENT 


Venezuelan  Arbitration  of  1903,  to  the  general  rule  that 
jurisdiction  over  bond  claims  is  not  exercised  by  interna¬ 
tional  commissions.106 

Before  the  Venezuelan  commissions,  sitting  at  Caracas, 
four  bond  claims  were  presented,  with  various  decisions.  In 
the  case  of  the  Comp.  G6n6rales  des  Eaux  de  Caracas  (Bel¬ 
gium),107  Venezuelan  bonds  payable  to  bearer  had  been 
issued  to  the  corporation  for  certain  public  works.  From 
the  decision  it  would  seem  that  the  general  rule  of  non- 
enforcement  of  bond  claims  may  be  held  not  applicable 
where  the  bonds  are  issued  in  payment  of  property  rights 
transferred  to  the  government.  Although  many  of  the 
stockholders  were  not  Belgians,  an  award  was  made  with 
the  peculiar  provision  that  the  money  should  be  deposited  in 
a  Belgian  bank  and  the  bonds  paid  on  being  turned  in.  The 
production  of  the  bonds  naturally  was  made  a  necessary  con¬ 
dition  for  the  making  of  an  award,  so  where,  in  the  case  of 
Ballistini  (France),108  the  original  bonds  were  not  produced, 


106  Venezuelan  Bond  cases,  Aspinwall,  Executor  of  G.  G.  Howland 
et  al.  (U.  S.)  v.  Venezuela,  Dec.  5,  1885,  Moore’s  Arb.,  3616-3641.  This 
claim  was  dismissed  by  the  mixed  commission  under  the  convention  of 
April  25,  1866.  The  findings  of  this  commission  were  reopened  because 
of  the  alleged  fraud  of  the  arbitrators.  Under  a  strict  construction  of 
the  protocol,  Bates,  Umpire,  dismissed  the  Texas  Bond  cases  before  the 
Britisb-U.  S.  Commission  of  Feb.  8,  1853,  Moore’s  Arb.,  3594.  One 
reason  was  that  they  had  not  been  treated  by  Great  Britain  as  a  subject 
for  diplomatic  interposition.  The  decision  is  criticised  by  Westlake,  vol. 
1,  77-78,  citing  Dana  in  Dana’s  Wheaton,  §  30,  n.  18.  Jurisdiction  was 
exercised  by  the  Mexican  commission  of  1868  over  a  stolen  bond, 
Keller  (U.  S.)  v.  Mexico,  July  4,  1868,  Moore’s  Arb.,  3065,  on  the 
ground  of  fraudulent  destruction  of  specific  property  having  a  definite 
value  and  certain  assurances  by  the  government.  See  also  Eldredge 
(U.  S.)  v,  Peru,  Jan.  12,  1863,  Moore’s  Arb.,  3462.  The  failure  to 
fulfill  the  obligations  of  a  bond  issued  for  supplies  was  held  not  an 
“injury  to  property”  by  the  U.  S.-Mexican  Commission  of  1868  (Ma- 
nasse  case,  Moore’s  Arb.,  3463),  although  the  failure  to  pay  for  supplies 
furnished  under  contract  had  been  so  construed. 

107  Comp.  Generate  des  Eaux  de  Caracas  (Belgium)  v.  Venezuela, 
March  7,  1903,  Ralston  I,  271-290. 

108  Ballistini  (France)  v.  Venezuela,  Feb.  27,  1903,  Ralston  I,  503-506. 


OF  INTERNATIONAL  DISPUTES 


55 


the  claim  was  dismissed,  Paul,  Commissioner,  in  a  dictum 
giving  expression  to  the  usual  rule  of  the  non-enforcement 
of  bond  claims  before  international  commissions.  In  the 
case  of  Boccardo  (Italy),108  where  national  bonds  were  de¬ 
livered  to  claimant  in  payment  for  articles  furnished  and 
were  never  transferred  by  him,  judgment  was  rendered  on 
the  authority  of  the  Aspinwall  case  before  the  Venezuelan 
Commission  of  1885.  The  fourth  case,  Jarvis  (U.  S.),110 
was  dismissed  because  the  service  and  the  supplies  for  which 
the  bonds  were  issued  (by  a  temporary  dictator  of  Vene¬ 
zuela)  were  furnished  to  an  unsuccessful  revolution,  which 
had  not  been  recognized  by  the  government  of  the  United 
States,  and  hence  presumably  they  were  not  valid  obligations 
of  Venezuela. 

The  United  States,  in  its  endeavor  to  be  consistent  with 
the  maintenance  of  the  Monroe  Doctrine  and  with  the  dec¬ 
laration  of  President  Roosevelt  that  that  doctrine  could  not 
be  used  by  any  nation  of  this  continent  to  shield  it  from  the 
consequences  of  its  own  misdeeds,  has  at  times  been  placed 
in  the  most  delicate  position  when  foreign  nations  have  at¬ 
tempted  to  seek  redress  for  the  alleged  violation  of  inter¬ 
national  rights.  So  in  the  settlement  of  numerous  difficulties 
between  European  nations  and  Latin-American  states  aris¬ 
ing  out  of  pecuniary  claims  the  United  States  has  had  an 
active  interest.  Especially  where  the  occupation  of  Ameri¬ 
can  territory  seemed  imminent,  the  United  States,  by  virtue 
of  its  responsibilities  under  the  Monroe  Doctrine,  has  felt 
called  upon  to  undertake  what  may  be  called  friendly  inter- 

109  Boccardo  (Italy)  v.  Venezuela,  Feb.  13,  1903,  cited  in  note  to 
Ralston  I,  505  (not  reported).  See,  however,  the  brief  statement  given 
by  Mr.  Ralston  in  his  address  before  the  International  Law  Association, 
24th  Report,  193-194. 

no  Jarvis  (U.  S.)  v.  Venezuela,  Feb.  17,  1903,  Ralston  I,  145-151. 


56 


JUDICIAL  SETTLEMENT 


vention  to  prevent  such  occupation  and  yet  satisfy  the  cred¬ 
itor  nations. 

President  Roosevelt,  in  his  message  to  Congress  of  Dec.  5, 
1905,  stated  these  embarrassing  conditions,  pointing  out  at 
the  same  time  the  method  by  which  relief  from  this  critical 
situation  could  be  most  equitably  and  practically  secured. 
In  his  message  he  said : 

“Our  own  government  has  always  refused  to  enforce 
such  contractual  obligations  on  behalf  of  its  citizens  by  an 
appeal  to  arms.  It  is  much  to  be  wished  that  all  foreign  gov¬ 
ernments  would  take  the  same  view.  But  they  do  not,  and 
in  consequence  we  are  liable  at  any  time  to  be  brought  face 
to  face  with  disagreeable  alternatives.  On  the  one  hand,  this 
country  would  certainly  decline  to  go  to  war  to  prevent  a 
foreign  government  from  collecting  a  just  debt ;  on  the  other 
hand,  it  is  very  inadvisable  to  permit  any  foreign  power  to 
take  possession,  even  temporarily,  of  the  custom-houses  of  » 
an  American  Republic  in  order  to  enforce  the  payment  of  its 
obligations,  for  such  temporary  occupation  might  turn  into  a 
permanent  occupation.  The  only  escape  from  these  alterna¬ 
tives  may  at  any  time  be  that  we  must  ourselves  undertake 
to  bring  about  some  arrangement  by  which  so  much  as  pos¬ 
sible  of  a  just  obligation  shall  be  paid.  It  is  far  better  that 
this  country  should  put  through  such  an  arrangement  rather 
than  allow  any  foreign  country  to  undertake  it.  To  do  so 
insures  the  defaulting  republic  from  having  to  pa)r  debts  of 
an  improper  character  under  duress,  while  it  also  insures 
honest  creditors  of  the  republic  from  being  passed  by  in  the 
interest  of  dishonest  or  grasping  creditors.”111 

This  method  of  administering  the  finances  of  bankrupt 
and  unstable  governments  has  in  fact  been  applied  in  the 
Dominican  Republic.  In  1905  it  was  effective  in  restraining 
the  forcible  attempt  of  Germany,  Spain  and  Italy  to  secure 


111  For.  Rel.,  1905,  H.  Doc.  1,  59th  Cong.,  1st  Sess.,  34-35. 


OF  INTERNATIONAL  DISPUTES 


57 


payment  of  arrears  of  interest  and  pledged  revenues  to  their 
subject  creditors.  International  practice  seems  to  have  given 
a  sanction  to  this  form  of  intervention.  It  might  be  called 
benevolent  intervention  in  the  interests  of  the  debtor  state 
and  of  its  creditors,  and  however  the  paternal  control  of  the 
temporary  guardian  may  hurt  the  pride  of  the  citizens  of  the 
bankrupt  nation,  the  advantages  resulting  to  world  peace 
exceed  by  far  such  minor  disadvantages  as  the  disapproval 
of  a  few  patriotic  nationals.llla  Nevertheless,  in  the  absence 
of  an  international  forum,  it  does  not  seem  apparent  how 
grossly  exaggerated  claims  against  these  states  can  be 
avoided,  for  presumably  the  financial  administration  looks 
only  to  the  payment  of  the  current  expenses  and  of  the  na¬ 
tional  debts  and  makes  no  provision  for  the  judicial  exami¬ 
nation  of  the  legitimacy  of  the  latter.  The  unratified 
treaties  of  1911  between  the  United  States,  Honduras  and 
Nicaragua  and  the  proposed  “protectorate”  treaty  with  Nic¬ 
aragua,  all  of  which  were  invited  by  these  small  republics, 
indicate  a  necessary  policy  of  this  government,  whether  by 
temporary  receivership  or  supplementary  administrative 
control,  to  secure  the  financial  rehabilitation  of  the  weaker 
states  of  Latin-America,  and  thus  reassure  foreign  creditors 
and  maintain  domestic  peace  and  prosperity  on  terms  most 
favorable  to  Latin-America.112 

llla  This  Latin- American  disapproval  of  the  policy  of  the  United 
States  as  evidenced  in  the  unratified  treaties  of  1911  with  Honduras  and 
Nicaragua  is  expressed  in  a  series  of  pamphlets:  United  States  and 
Latin  America,  Dollar  Diplomacy,  by  Juan  Leets,  New  Orleans,  1912; 
Nicaraguan  Affairs,  San  Jose,  1912;  the  Morgan-Honduras  Loan,  3 
parts,  New  Orleans,  1911-12. 

112  European  countries  have  adopted  practices  of  various  kinds  to 
assure  the  successful  operation  of  a  loan  contract  concluded  between  a 
foreign  nation  and  their  subjects.  Thus  Great  Britain  has  provided  in 
such  cases  for  the  selection  of  a  British  supervisor  of  the  loan  and  the 
government  “takes  cognizance”  of  the  contract.  In  the  Dominican  and 


58 


JUDICIAL  SETTLEMENT 


Conclusion. 


The  Porter  proposition  is  by  no  means  a  complete  remedy 
for  existing  evils,  except  in  so  far  as  it  protects  a  debtor 
state  from  the  immediate  use  of  force.  It  still  permits  of 
much  injustice  to  the  debtor  nation,  inasmuch  as  claims  are 
still  presented  on  ex  parte  evidence  without  a  judicial  exami¬ 
nation  of  the  merits  of  the  case.  Experience  has  shown  that 
claims  are  generally  greatly  exaggerated.  Again,  the  cred¬ 
itor’s  national  government  is  not  required  to  arbitrate.  The 
failure  to  make  or  accept  the  offer  of  arbitration  simply  pre¬ 
cludes  the  use  of  force  in  first  instance,  but  not  the  use  of 
other  methods  of  oppression.  Experience  has  shown  that  it 
is  only  against  weak  states  that  governments  will  interpose 
to  secure  the  payment  of  contract  debts.  Moreover,  there 


the  unratified  Honduras  and  Nicaraguan  treaties,  diplomatic  protection 
is  extended  to  the  receiver  or  supervisor  in  the  performance  of  his  du¬ 
ties.  See  the  treaties  between  the  United  States  and  Dominican  Re¬ 
public,  Feb.  7,  1907,  Honduras,  Jan.  26,  1911,  and  Nicaragua,  June  8, 
1911.  See  also  editorial  comment  on  the  treaties  in  Amer.  Journ.  of 
Int.  Law  (1911),  1046-1051.  A  discussion  of  the  treaties  by  Sec’y  of 
State  Knox  is  contained  in  his  speech  before  the  New  York  State  Bar 
Association  (1912),  311-318.  An  elaborate  explanation  and  justification 
of  the  policy  of  the  United  States  in  negotiating  the  treaties  is  to  be 
found  in  President  Roosevelt’s  message  in  connection  with  the  customs 
revenues  of  the  Dominican  Republic,  Confidential  Executive,  V,  58th 
Cong.,  3rd  Sess.  See  also  speeches  incident  to  the  visit  of  Philander  C. 
Knox  to  the  countries  of  the  Caribbean,  Feb.  23  to  April  17,  1912 
(Washington,  1913,  Ch.  Ill  and  IV).  France  has  apparently  no  objec¬ 
tion  to  using  its  subjects’  foreign  loans  to  foster  its  commercial  interests. 
Speech  of  M.  Pichon,  Minister  of  Foreign  Affairs,  in  the  Chamber  of 
Deputies,  Jan.  13,  1911.  Journal  Officiel,  Jan.  14,  1911.  Notwithstanding 
the  disapproval  of  the  present  Administration  of  “dollar  diplomacy” — 
an  ill-defined  and  much-abused  term — as  evidenced  in  the  withdrawal 
from  the  Chinese  loan,  the  Administration  has  clearly  indicated  by  the 
proposed  so-called  “protectorate”  treaty  with  Nicaragua  its  necessary 
interest  in  the  financial  stability  of  the  small  Latin-American  states. 
The  recent  threat  of  Great  Britain  to  dispatch  a  warship  to  Guatemala 
to  secure  the  payment  of  debts  and  the  resultii.g  appeal  of  Guatemala 
to  the  United  States  presents  a  familiar  situation  in  our  Latin-American 
relations.  By  reason  of  the  Monroe  Doctrine,  we  cannot  avoid  an  active 
concern  in  the  adjustment  of  these  difficulties,  and  had  better  sanction 
a  method  of  peaceful  administrative  supervision  most  conformable  to 
the  interests  of  all  parties  concerned. 


OF  INTERNATIONAL  DISPUTES 


59 


is  a  question  whether  the  debtor  government  can  demand 
arbitration.113  This  should  certainly  be  made  possible. 

On  the  other  hand,  the  unpaid  creditor  has  no  individual 
right  to  bring  about  the  adjustment  of  his  claim.  The  action 
of  his  government  in  his  behalf  depends  upon  political  con¬ 
siderations  and  is  entirely  a  matter  of  expediency  and  policy. 
If  his  government  for  any  reason  declines  to  become  inter¬ 
ested  in  his  case  or  to  espouse  his  claim  against  the  foreign 
government,  the  creditor  is  without  a  remedy.  A  legal  right 
of  the  individual  may  therefore  be  sacrificed  to  the  political 
exigencies  of  his  government.  With  the  constant  growth  of 
international  contractual  relations  between  individuals  and 
foreign  governments,  the  fulfillment  and  enforcement  of 
legal  obligations  toward  individuals  should  be  divorced  from 
political  considerations.  The  difference  in  the  practice  of 
governments  in  the  support  of  contract  claims  gives  an  un¬ 
equal  advantage  to  the  nationals  of  some  states  and  corre¬ 
spondingly  embarrasses  the  governments  whose  policy  or 
practice  it  is  to  decline  diplomatic  pressure  in  such  cases. 

These  various  defects  of  the  system  as  it  still  exists,  with 
its  possibilities  of  injustice  either  to  the  debtor  state  or  the 
unpaid  creditor,  or  both,  lend  much  weight  to  the  proposal, 
advanced  with  greatest  emphasis  in  Germany,  that  an  inter¬ 
national  court  be  created  by  international  agreement  for  the 
adjustment  of  these  essentially  legal  claims.  The  individual 
should  be  given  the  right  to  bring  suit  against  the  debtor 
nation  before  this  international  tribunal ,  as  has  been  done  in 
the  convention  for  the  establishment  of  an  international  prize 
court  and  in  the  treaty  of  Washington  for  the  establishment 
of  a  Central  American  Court  of  Arbitration.  The  creditor 

113  O.  Nippold  in  Ztschr.  fur  internationales  privat.  u.  offentliches 
Recht,  vol.  18,  260. 


6o 


JUDICIAL  SETTLEMENT 


will  be  assured  of  a  hearing,  the  debtor  state  will  be  secured 
against  the  pressure  of  exorbitant  claims  accompanied  by 
disagreeable  diplomatic  coercion,  the  government  of  the 
claimant  will  avoid  what  is  always  a  potential  germ  of  inter¬ 
national  difficulties  and  ill-will,  with  the  incidental  expense 
of  pressing  a  diplomatic  claim,  and  the  peace  of  the  world 
will  be  fostered  by  the  removal  of  one  great  source  of  inter¬ 
national  conflict.  The  details  of  the  organization  and  opera¬ 
tion  of  this  international  court  may  be  left  to  the  delegates  of 
the  Third  Hague  Peace  Conference,  who  may  profitably  ex¬ 
amine  the  proposals  of  several  learned  Germans.114  The 
prospect  and  opportunity  for  thus  advancing  the  cause  of 
international  justice,  toward  which  goal  the  Porter  proposi¬ 
tion  makes  only  a  slight  forward  step,  must  command  uni¬ 
versal  support. 

114  See  the  Denkschrift  or  memorial  of  the  Altesten  der  Kaufmann- 
schaft  von  Berlin  to  the  Imperial  Chancellor  Sept.  30,  1910,  reprinted 
in  Niemeyer’s  Zeitschrift  fiir  internationales  Recht,  vol.  20,  594-599,  and 
the  Denkschrift  of  May  20,  1912,  summing  up  the  whole  matter,  re¬ 
printed  in  Berliner  Jahrbuch  fiir  Handel  and  Industrie,  497-514.  See 
also  the  following  works :  Freund,  G.  S.  Der  Schutz  der  Glaubiger 
(Berlin,  1910),  §  5,  43  et  seq.;  Wehberg,  Hans,  Ein  internationaler  Ge- 
richtshof  fiir  Privat-klagen  (Berlin,  1911),  in  which  plans  for  the 
organization  and  operation  of  an  international  tribunal  are  carefully 
worked  out.  See  also  Wehberg’s  article,  Die  Durchsetzung  von  Pri- 
vatanspriichen  gegen  Schuldnerstaaten,  in  Jahrbuch  f.  d.  int.  Rechtsver- 
kehr,  1912-13,  391-402,  and  an  article  in  Deutsche  Wirtschafts-Zeitung, 
1912,  704-710,  Zur  Errichtung  eines  internationalen  Schiedsgerichtes 
fiir  Streitigkeiten  zwischen  Privatpersonen  und  auslandischen  Staaten. 
Fischer,  Otto,  Die  Verfolgung  vermogensrechtlicher  Anspriiche  gegen 
auslandische  Staaten  (Leipzig,  1912)  and  references  to  the  proposals  of 
others  mentioned  on  pp.  15-16.  See  also  a  further  note  by  Fischer  in 
Ztschr.  f.  deutschen  Zivilprozess,  vol.  43,  282-284,  and  works  already 
cited,  Meili,  Staatsbankerott,  etc.,  41,  50,  58,  59  and  63,  and  Pflug,  58-70. 


I 


Publications  of  the  American  Society  for  Judicial  Settle¬ 
ment  of  International  Disputes — 

1.  The  New  Era  of  International  Courts,  by  Simeon  E. 
Baldwin.  August,  1910. 

2.  The  Necessity  of  a  Permanent  Tribunal,  by  Ernest  Nys. 
November,  1910. 

Supplement — The  American  Society  for  Judicial  Settlement 
of  International  Disputes,  by  James  Brown  Scott.  November, 
1910. 

3.  The  Importance  of  Judicial  Settlement,  by  Elihu  Root. 
February,  1911. 

4.  The  Development  of  the  American  Doctrine  of  Jurisdic¬ 
tion  of  Courts  Over  States,  by  Alpheus  H.  Snow.  May,  1911. 

5.  An  International  Court  of  Justice  the  Next  Step,  by 
George  Grafton  Wilson.  Salient  Thoughts,  by  Theodore  Mar¬ 
burg.  August,  1911. 

6.  The  Work  of  the  Hague  Court,  by  N.  Politis.  Novem¬ 
ber,  1911. 

7.  The  Proposed  Arbitration  Treaties  with  Great  Britain 
and  France,  by  William  Howard  Taft.  February,  1912. 

8.  Non-Justiciable  Disputes  and  the  Peace  Treaties,  by 
Omer  F.  Hershey.  May,  1912. 

9.  The  International  Grand  Jury,  by  William  I.  Hull. 
August,  1912. 

10.  The  Court  of  Arbitral  Justice,  by  James  Brown  Scott. 
November,  1912. 

11.  Legal  Problems  Capable  of  Settlement  by  Arbitration, 
by  Charles  Cheney  Hyde.  February,  1913. 

12.  Precedent  and  Codification  in  International  Law,  by 
Paul  S.  Reinsch.  May,  1913. 

13.  International  Contractual  Claims  and  Their  Settlement, 
by  Edwin  M.  Borchard.  August,  1913. 


